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Wassie Tsegaye Mezgebu (820925T654)
Getahun Melkamu Firesibhat ( 841014T470)
Sustainability and Sustainability
driven Innovation in case of LEGO
Business Administration Master’s Thesis
15 ECTS
Term: Spring 2011
Supervisor: Petros Samuel (Ph.D.)
Acknowledgement
We, the researcher like to take this opportunity to thank those who have helped us
in every single minute of preparing this research paper. First of all we would like
to thank our families who gave us courage, strength and advice during our
research they are the iron angels in our stay here in Karlstad University. We also
like to thank LEGO group because they have provided us reports and documents
immediately when we request their cooperation.
We would like to extend our grateful thanks to our tutors Samuel Petros Sebhatu
Ph.D. and Bo Enquist Prof. for your time, politeness, patency and support. We
always feel like home when we come to Samuel Petros Sebhatu‟s office thank you
again for your cooperation. Above all we would like to thank almighty God
justification for our existence.
Wassie Tsegaye Mezgebu
Getahun Melkamu Firesibhat
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Table of Contents
Acknowledgement………………………………………………………………...2
Abstract …………………………………………………………………………...5
1. Introduction……………………………………………………………………6
1.1. Company background…………………………………………………….7
1.2. Research question………………………………………………………...7
1.3. Purpose of the study...…………………………………………………….8
1.4. Limitation of the study……………………………………………………8
2. Research Methodology…………………………………………………….......9
2.1. Research Method…………………………………………………………9
2.2. Data Source and Collection……………………………………………..10
2.3. Research Approach……………………………………………………...11
2.4. Data Analysis…………………………………………………………....12
2.5. Validity and Reliability……………………………………………….....13
3. Theoretical background……………………………………………………..15
3.1. Sustainable development and corporate social responsibility………….16
3.2. Innovation……………………………………………………………….19
3.3. Sustainability and Service Innovation…………………………………..21
3.4. Sustainability and business innovation………………………………….26
3.5. Sustainability driven innovation………………………………………...27
4. Empirical study……………………………………………………………....30
4.1. Only the best is good enough…………………………………………..30
4.2. Environmental policy and Innovation………………………………….31
4.2.1. Material chemistry……………………………………………….32
4.2.2. Environmental certification………………………………………33
4.2.3. Reduced and compostable print and packaging………………….33
4.2.4. Design for disassembly…………………………………………..33
4.2.5. Return solution…………………………………………………...33
4.3. Social policy and Innovation………………………………………..…37
4.4. Innovation and Business activity………………………………………40
4.5. Code of conduct and sustainability…………………………………….41
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5. Data Analysis………………………………………………………………...44
5.1. Sustainability in LEGO group………………………………………….44
5.2. Innovation for Environment……………………………………………45
5.3. Innovation for Society well beings…………………………………….49
5.4. Innovation for business………………………………………………...50
6. Conclusion…………………………………………………………………...53
References…………………………………………………………………….54
5
Abstract
Sustainability has obtained greater consideration than any time before. Large
international companies need to implement sustainability strategies and create
solutions how sustainability strategies and business activities can go hand in hand.
Sustainability drives innovation and Innovation has also served as a means to
solve the sustainability problem nowadays.
Our research title is “Sustainability and sustainability driven Innovation in case
of LEGO Group” and we will look sustainability issues and the effect of
sustainability on innovation in case of LEGO group. We will see how
sustainability drives innovation activity of the company. In order to determine
the scope of our research we have raised two research questions: Is LEGO
group work on creation of sustainable society, environment and business? And
we will also consider were sustainability practice drives service and/or business
innovation activity of LEGO group.
We have reviewed different literatures, books and articles in order to understand
the concept behind sustainability and service and business innovation. We have
also collected data from the company‟s website. However our research is limited
to secondary data obtained from the company and articles written about LEGO
group.
After analyzing the data gathered to answer our research question we have found
that LEGO group is effectively working on creation of sustainable society,
environment and business; and is actively working on sustainability and its
sustainability activity is also driving its innovation strategy.
6
1. Introduction
Business organizations always need to obtain sustained large of amount profit for
shareholders. Entities are subject to different types of constraints while doing their
businesses. Natural resources are reducing and non renewable energy sources are
also declining due to this fact recently, Government and Non Government
organizations are expecting a lot from business organizations in the creation of
sustainable society, environment and business. Sustainability is now therefore
becoming the burning issue in whole world.
Hence sustainability issues take the attention of business entities to consider
environmental and social responsibilities into their strategic business plans.
Indeed making business activity sustainable requires huge investment as Ram et al
(2009) said but business organizations need to change or improve their method of
production in order to manufacture sustainable goods and services. Innovation has
a constructive impact on the achievement of sustainable development and
corporate social responsibility goals. Therefore companies which work
extensively on sustainability invest huge amount of money on research and
development. Companies are using service and business innovation as a tool for
achieving their sustainability objectives.
In this thesis our main objective is to make an empirical study on the
sustainability activities of LEGO group and also we will asses if sustainability
drives service and business innovation. In order to support our analysis we will
collect data from various articles, literatures and the company‟s website.
The thesis will be organized in to six chapters. This is the first chapter it is an
introductory chapter which gives general frame work about the study, chapter two
is review of various literatures on sustainability, innovation and we will assess the
relationship between the two concepts, three is methodology of the study, the
next chapter will be the empirical study part in which we will deeply look in to the
sustainability, innovation and sustainability driven innovation of the LEGO group
and the next two consecutive chapters are the analysis and conclusion based on
the literatures we reviewed and the data obtained from the company.
7
1.1. Company background
LEGO group is the world fourth producer of play materials and fifth largest
producers of toys. The LEGO Group was established in 1932 in Denmark by Ole
Kirk Christiansen; he introduced to the market the most successful product of the
group “LEGO bricks” in 1949, and in 1957 manufactured a tube system to
connect LEGO bricks. The company is still owned by the fourth family of Ole
Kirk Christiansen and it was managed by the grandson of the founder until 2004
but the late crises forced the company owners to transfer the management to
externals. Since 2004 the company is managed by Jorgen Vig Knudstorp who is
external from the family member. The transparent management system is
inherited from the Danish system which helped LEGO group for its continuous
success (Mary and Majken 2010). The word LEGO is an abbreviation of two
Danish words “Leg godt” it means “play well” the company interprets it as “it is
our name and it is our ideal”.
The company is now working on development of children‟s creativity through
playing and learning‟s. LEGO group produces toys, play and teaching materials
for children in more than 130 countries. Currently it has about 9,000 employees.
1.2. Research question
Service and business innovation has contributed a lot in the creation of sustainable
business, environment and society. So that companies are motivated to have
innovations in order to attain their sustainability objectives. In this research paper
we will assess whether LEGO group is working in sustainability activities or not
and we will also look if sustainability drives innovation. In brief our research
questions in our journey throughout this paper are described below:
Is the group work on creation of sustainable society, environment and
business? and
We will also consider were sustainability practice drives service and/or
business innovation activity of LEGO group.
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1.3. Purpose of the study
Our objective in this research paper is to see LEGO group‟s sustainability
activities and the impact of its sustainability practices on the innovation activities.
Generally we will look various literatures and compare it with the company‟s data
in order to help us answer the above research questions.
1.4. Limitation of the study
This study focuses on searching of relevant data to answer the research questions
we have raised above. However in the process of data collection it is limited to
secondary data from the company‟s website and looks further only a few articles.
This is because of availability of limited time span during the research process.
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2. Research Methodology
In this part of the thesis we will explain briefly how we get data for analyzing and
the methods we chose to analyze the collected data. Scientifically conclusion
about the research question can be done in two ways: it can be performed
deductively or inductively.
Deduction as Pervez and Kjell (2010) discussed conclusion is made through
logical reasoning. The fact we reached about should not be perfectly true in reality
but it needs to be logical. The researcher draws his conclusion from large
available literatures or his own knowledge. It is usually applicable in quantitative
research methods (Pervez and Kjell 2010).
Inductive research is based on empirical evidences i.e. a conclusion is made based
on the empirical data. In this method the research process is goes from
observation to findings and then to theory building (Pervez and Kjell 2010). In
this type of research process theory is the final result of the research (Bryman and
Bell 2003).
In this thesis we made purely qualitative research based on theoretical data
collected from LEGO group‟s website. Perhaps primary data is more valuable
than secondary data during the research process some times more reliable and
credible second hand data can be obtained from some companies. LEGO group
has put all the relevant empirical data in its website and in to various reports
including sustainability report, progress report and annual report. The research
method we have used to make our analysis and reaching on conclusion based on
the qualitative data is an inductive research method. This chapter generally deals
with research methodology employed throughout this thesis in order to tackle the
research questions is discussed.
2.1. Research Method
There are two ways of performing research one is qualitative the other is
quantitative research. Qualitative research is when the data collected is impossible
to put it or analyze it in numerical terms. So the analysis will be without the use of
mathematical models. Quantitative research on the other hand is the data collected
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can be put in terms of numerical and the analysis can be done with the use of
some statistical models. Qualitative research is based on understanding from
people idea, opinion and believes. We have chosen this research method because
we want to see the topic in detailed form the opinion of others and theories rather
than statistical figures.
Qualitative research is about producing of new theories it is not about examining
existing theory. However as Bryman and Bell (2007) stated some time it is also
possible to use qualitative research to test or analyze existing theories. In other
words qualitative research is formulating of concepts and understandings by
observing the structure of data. This type of strategy allows the researcher a
flexible research design for instance the researcher can formulates unstructured
questioners (Taylor & Bogdan, 1984). Trochim (2006) recommends in order to
understand the very point of qualitative type of research design it is enough to
take the fact contextually. As described above we made a qualitative research to
explore the company‟s data over the time.
In our research, because of the shortage of time to make an interview or making
direct observation we have not go beyond the theoretical interpretation of the
empirical data obtained from the company‟s website.
2.2. Data Source and Collection
This thesis is performed highly based on theoretical second hand information
obtained from the LEGO group‟s website. In the research process data can be
obtained through primary sources such as observation, interview and
questionnaires. It can also be collected from secondary sources from various
literatures and previous studies. It is our first stage after deciding the research
topic. This step in the research process involves collecting of necessary data by
reviewing various literatures including articles, online sources, papers, books and
other relevant materials. Our main objective when collecting data was to see the
sustainable development, service innovation and to see their relationship in case
of LEGO group.
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Our main object in this study is to see the effect of practicing sustainable business
on service innovation. In order to see that we have considered various relevant
literatures and cross checked with the companies data uploaded in its website. By
collecting relevant data and analyzing it qualitatively based on various literatures
and researchers knowledge and experience this study look the benefit obtained by
LEGO group from its sustainable driven service innovation.
All we have used is secondary data. Secondary data mean where during the data
collection process the researcher is not take part. He uses data previously gathered
by others for similar of different researches. Bryman and Bell (2007) said the
researcher is not part of the data collection process during use of secondary source
of data but others have collected this data. The secondary data we collected is
from the Company‟s webpage our main objective while collecting data was to
understand and examine the sustainable development and service innovation
activities; and to see the relationship between sustainable development and service
innovation.
We have used various documents issued by the company in different times
including annual reports, sustainability reports, progress report code of conduct
and leaflets. We have also collected information from previous researches and
articles. These documents have helped us to get deep understanding of the
industry in general and the LEGO group in particular. It is also important to
understand basic concept about the research topic: Sustainability and service
innovation. LEGO group has started to issue sustainability report in 2006 and we
have deeply assessed all the reports till 2010.
In order to support our empirical part we have also collected information from
other external sources such as book, articles, online resources newspapers and
previous master thesis which are related to sustainability and service innovation
issues.
2.3. Research Approach
There are two widely used research approaches: Inductive and deductive
approach. In deductive approach the researcher examines a theory and construct
12
hypothesis. In this method the researcher develops an approach to test the
hypothesis. Where as in the case of inductive approach the researcher first collect
relevant data and constructs theory based on the analysis made during the research
process. There can also be the third type of research approach which will be
developed based on the combination of the two methods (Saunders et. al 2003).
As we previously stated we have used inductive research approach.
2.4. Data Analysis
In the previous part of this chapter we have explained how data is obtained and
collected now we will show how the analysis is done in order to reach a
conclusion. There are different ways of analyzing or processing of a raw data. As
we described in the previous sections raw data can be analyzed either qualitatively
or quantitatively. In this research we have used qualitative data analysis method.
There are different ways of analyzing qualitative data. Saunders et al. (2003) said
analyzing of qualitative data due to the vast nature has no specified way we need
to follow. Data analysis in qualitative research is affected by the research method
used either deductive or inductive and it also affected by the data structure. Once
data is collected in order to analyze we need to restructure it in the form of small
parts or sentences without changing the meaning of the original text which is
helpful to understand relationships and important to make comparisons with the
underlined theories and the method is terms as meaning condensation (Steinar
1996). We have used this method throughout the analysis process in order to
make the data easier to understand and simple to compare and contrast.
After we organize our empirical data in easy and understandable manner we need
to analyze it against the theories we have collected. We have defined and
structured in easy manner the empirical data collected under chapter three with
regard to sustainable development and its effect on service innovation in the
underlined company and compared, check and analyzed it against the theories we
have put in under chapter three. Finally based on the analysis of the data we have
put our conclusion about the practice of sustainable driven service innovation in
case of LEGO group.
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Generally our main intention in the analysis part of our research process is to
compare the empirical data obtained from the company‟s website and other
documents with the theoretical framework we put under chapter three and point
out similarities and deviations to reach good conclusions. Specifically we have
seen if there is a relationship between sustainable development and service
innovation and how sustainable development drives service innovation.
2.5. Validity and Reliability
Both these terms refer to the existence of some credibility for user who are
interested to read the underlined research paper. The author must bear in mind a
responsibility in order to produce a thesis with its conclusion is based on valid and
reliable source of data and free from bias and have good analysis.
We have deeply looked the data regarding sustainable development and service
innovation especially during the years from 2006 to 2010 and taken all data and
presented and interpreted concepts in credible and reliable manner. We have put
all the data in its original form. Validity of a research as Bryman and Bell (2007)
stated is the truthfulness or accuracy of the conclusion made based on the data
gathered from the study. In the previous part of this chapter we have mentioned
that we have used only secondary sources of data so that we have critically
considered the data in order to assure its validity and reliability and we analyzed
the company‟s history in relation to sustainable development and service
innovation. In our understanding this helped us to have valid empirical data.
A research is said to be reliable when the finding and result can be applicable in
other researches and it is consistent with change in different variables. Generally
when the reflection made based on the finding is repeatable and applicable for
future researches it is said to be reliable (Bryman and Bell 2007). Reliability also
measures the level of stability of the research result. It deals about the strength of
data measurement it dictates the result of the study should be consistent with
different measurements (Merriam 1994).
While collecting of data both for the empirical study part and for the theoretical
part we gave more emphasis for the issues of being impartial, free from biases,
14
consistency and relevancy in order to have valid and reliable information to help
our conclusion strong and applicable for further studies.
15
3. Theoretical background
The main purpose of this thesis is to look the sustainable practice of LEGO group
and effect of practicing sustainability strategies on service innovation. In order to
answer our research question and to see the link between sustainability and
service innovation we have examined various literatures.
Sustainability and service innovation are highly interrelated in many aspects. The
need for innovation can be derived from sustainability demand in which
companies always want to satisfy their customers and stakeholders need along
with sustainable development goals. In other words if a company need to have
sustainable business it has to shift from the current or traditional to new energy
efficient and eco friendly way of production both requires innovation. Therefore
we can say that sustainability brings or increases the demand for service
innovation.
Usually when we hear the concept of sustainability or sustainable development as
Hart (2005) said we start think of about renewable, responsible, environment,
society, clean, zero waste and financially feasibility circumstances. Most of these
concepts are closely related with getting new or improved ideas which are part of
innovation. So that recently innovation and sustainability cannot be seen
separately.
Much has been talked about sustainability but little action is taken so far. For
example the Copenhagen, 2010 and Cancun, 2010 meeting expected to bring
more changes than the previous years‟ meetings on sustainability before the
meeting was held but it was ended up without answering key question about
regulations of carbon emissions and environmental protection and sustainability in
general (Knut et al 2011).
We can identify different reasons for not taking of immediate action on reducing
of environmental impact of industries and business entities. The two main reasons
identified by Knut el al (2011) from survey response collected from about 3,100
managers and executives of big companies around the globe are qualitative nature
16
of benefit and cost of sustainability practices and difficulty of formulating a
formula to measure the impact of sustainability.
These days sustainability is associated with innovation. Companies who give
more attention for environmental consideration always focus on the innovation of
effective production processes and utilization of resources. Business entities
which give more emphasis on sustainability also invest large amount of funds on
innovation more than those companies which give less emphasis for sustainability
(Knut et al 2011) this implies that sustainability can have effect on innovation
strategy of a company.
In the subsequent parts of this chapter we will first explain the concept sustainable
development and corporate social responsibility, and then we will look at
innovation in two different perspectives: service and business innovation and
finally we will see sustainable driven innovation.
3.1. Sustainable development and corporate social responsibility
Usually these two terms can be used to represent the same thing but conceptually
they are different. Corporate social responsibility refers to the triple bottom lines
dictated by the WBCSD i.e. economic, social and environmental prosperity of the
business however sustainable development give more emphasis to societal and
environmental development.
WBCSD (1996, p,3) defines sustainable development as:
Sustainable development involves the simultaneous pursuit of economic
prosperity, environmental quality and social equity. Companies aiming for
sustainability need to perform not against a single financial bottom line
but against the triple bottom line.
According to this definition economic development should integrate social well
beings and environmental protections. Sustainable development is usually seen in
the view of the Brundtland (1987, p 8) statement:
17
Humanity has the ability to make development sustainable – to ensure that
it meets the needs of the present without compromising the ability of future
generations to meet their own needs.
The Brundtland has put sustainable development in clear terms which looks the
demand of the present society by reducing the impact on social, environmental
and economic effect of the future generation. This point is further explained by
Brown (1992) as sustainable development is intergenerational in which it sets a
limit for the excessive utilization of energy and resource so as to give emphasis to
the future uses.
Sustainable development is the act of improving human life at the same time by
considering environment-is the most significant but difficult issue to achieve in
the mean time (Massachusetts Institute of Technology 2003).
Sustainable development is a framework which connects the humankind with the
natural system. They argue that human beings livelihood is highly dependent on
nature. Development by considering nature is the key for the creation of healthy
social and environmental places (William and Kim 2008).
During the early times most companies perceives business activity only in terms
of an increase in wealth and net income for shareholders. Shareholders‟
investment can be increases just by engaging in profitable business, that might be
by considering effect on environment and society or not. So companies need to
differentiate the cause for an increase in wealth.
There is a difference between economic growth and economic development.
Robert (1991) defines economic growth as an increase in production or wealth
without considering future environmental and social effects, hence it cannot be
sustainable because resources are limited and future demand will be affected by
today‟s aggressive consumption of resources. In other words economic
development is creation of better quality of life during the business dealing
without affecting future demands of resources which is sustainable. Hence these
days it is necessary to think beyond economic interest. As various writers and
18
interested groups dictated development should be sustainable. The WBCSD
(1996) has framed three bottom lines for a sustainable business (business activity
considering society and environment) which are economic prosperity,
environmental quality and social equity. In short they are considered as the „Triple
P‟ (People, Planet and Profit) principle by Elkington (1997).
Corporate social responsibility defined by World Business Council for
Sustainable Development as a business activity which behaves ethically and
involves economic development by simultaneously improving the livelihood of
the society. The relationship between these three bottom lines can be seen in
Figure 2. This model depicts the relationship between economic, social and
environmental activities of a company.
Figure 2.1 Model of sustainable development (Johann Dréo/Wikimedia
Commmons2007, p 3.)
So we can create a link between the three elements even though they are
independent of each other. The intersection part is considered as a sustainable way
of development which considers all the three elements sustainability. Harris et al
(2001) have different view about this explanation they claim that, even though
economic growth can contribute positively for social well beings there is no direct
19
empirical evidence which links these two elements that means wealthier is not
necessarily mean cleaner. But they agree the triple bottom lines are critical for
sustainability.
3.2. Innovation
We have discussed sustainability in the previous part of the chapter here we will
see innovation in brief. Innovation is always associated with creation of new
thing which can be converted in to monetary terms. It means producing of new
materials, products, processes or introducing of something new which can
perform task where human being were unable to do it before (Jim 2002).
Innovation helped a lot for the creation of new business opportunity for investors
and it has contributed for the development of a country. These days it serves as a
means to overcome the sustainable development problem. The work innovation
can be defined as:
Innovation is a focused application of the human mind to the world that
yields an original creation with practical use (Massachusetts Institute of
Technology 2003, p, 9).
Innovation can also be defined as the introduction of goods or services that may
not be entirely new but it is creation of products in a better way. It is a continuous
and necessary process which resulted from research and development activities.
Its ultimate objective is making of business from the invented products or
services. Innovation is creation of entirely new product or service or it can be
modification of either functionally or conceptually currently existing product or
services (Jim 2001).
OECD (2007) identifies four ways of classifying and defining innovation. This
thesis deals with the effect of sustainability on service and business innovation
which is in one or another way included in each part:
Product innovation: is characterized by the creation of new or genuine products
or the significant improvement of existing products or services. This includes
20
improvement of production techniques, inputs, materials, software and other
functional characteristics.
Process innovation: is innovation of completely new or partially improved
production or delivery system.
Marketing innovation: it consists of implementation of a new marketing system
such as changes in product design, packaging, product placement, product
promotion or pricing.
Organizational innovation: is introducing of a new organizational structure,
business practices, workplace and also practicing of new ways of conducting
external relation.
We will see innovation from two perspectives: Service innovation and Business
innovation. Service innovation is introducing of new services or improvement of
existing service in a business process.
Innovating of service is very important for business improvement but the process
of innovating is not as such simple. It is logical to invest in service innovation
activities for business organizations because it is helpful for profitability and
differentiation. Innovating service is a problem for the entire companies both in
developing and developed nations. The main problem in developed nations is a
lack of knowledge for innovating of services than innovating of new tangible
products (Henry 2011). The globes large companies are moving towards services
providing that physical products. The 2008 statistics in the member countries of
Organization for Economic Cooperation and Development (OECD) shows 70
percent of gross domestic product and employment is from service companies
(OECD 2005).
Service giving is not as simple as conversion of material input in to final products
and delivering to customers instead it requires day to day interaction and involves
understanding of customer experiences. The process states by creating of services
by participating customers and by giving them what they demands (Henry 2011).
21
Business innovation is wider than service innovation it includes innovation of
products or services by changing the entity in general or business processes in
particular or by giving new product or service for customers and creating
constructive value for the business. So the ultimate objective of business
innovation is creation of new value for customers and investors (Koki 2007).
Koki (2007) identifies two reasons why companies must involve in business
innovation: to maintain strong competitive advantage in the existing market and to
enter and create new markets by introducing new items. Business innovation is
somehow different from invention. Invention is introducing or generating of new
ideas however business innovation is using of these new ideas to create new
market in order to crop cash. Hence invention is a single step in the process of
business innovation in which it consists of conversion of new ideas in to new
goods or services (Mark 2006).
Therefore innovation in a business entity can hold innovation of services
associated with the whole production process; or it can be business innovation
which is bringing new concepts to the production process to expand market share.
In the next part we will see the relationship between these two forms of
innovation with sustainability.
3.3. Sustainability and Service Innovation
These days we observe that companies are giving more consideration for
sustainability than any times before. However all companies across the world do
not give equal emphasis for sustainability. Those companies who give high
consideration to sustainability also give high consideration to service innovation.
In order to create competitive differentiation big sustainable companies focus on
innovation than companies who give less consideration to sustainability (Knut et
al 2011). Every individual or group in a country wants to have information about
the activities of big companies operating in that area. Innovation will help
sustainable companies by providing alternative source of resources and energy,
reducing input costs, energy consumption and by increasing efficiency and
22
effectiveness. Therefore innovation is inevitable as far as an entity is willing to
possess sustainable business activity.
Innovation for sustainable business is mostly practiced in developed countries
rather than developing countries. It is natural to observe that because it is only
after primary needs of individuals or companies are satisfied the need for safety or
protection will emerge. We consider profitability is the primary need for the
developing and new companies so they will give less consideration for
environment and society. In western countries as Nidumolo & Rangaswami
(2009) stated most entrepreneurs demand to see sustainable business which can
assure reduced waste the so called green production.
Service innovation can be motivated by different factors especially it is highly
driven by demographic factors and sustainability demands. We will focus on
sustainability driven innovation. If the population is continues to grow it will
impose pressure on utilization of natural resources and available energy sources
so that companies will demand to involve in innovation of new types of services
or need to improve the existing service in resource and energy efficient way.
There are varied types of stakeholders in the developing as well as developed
countries so it creates different need in the service quality. Sustainability issues
also affect the design for services delivery. Service innovation is expected to
achieve high quality of service and productivity by considering environment and
society as well (University of Cambridge 2008).
Environmental impact of aggravated industrialization and modernization can be
determined as a function of three variables: population, per capita consumption
and technological efficiency of consumption. Every increase in population and
resource consumption has an influence on the expectation on technology and
innovation (Vidhya and Chris 2004). The UK government highlighted the role of
innovation for sustainability in its innovation report (2003, p, 9) as follows
Innovation will also be essential for meeting the environmental challenges
of the future – including moving to a low carbon economy and reducing
23
waste. We need to find new ways to break the link between economic
growth and resource depletion and environmental degradation.
Here we can understand that innovation can serve as a tool to achieve
sustainability, hence sustainability can be driven by service innovation. The
relationship between sustainability and service innovation can also be seen from
another angle as Knut et al (2011) discussed. Sustainability means different for
different managers who are in different management positions of a company. C
suite managers (Lower level managers) perceives sustainability as Knut et al
(2011) writes is a means to create new sustainable business opportunities by using
innovative solutions. In other words the primary objective of implementing
sustainability is not environment rather creating of sustainable driven new revenue
by using innovation as a means.
Data collected from survey made by Knut et al (2011) from interview response of
managers in different companies show sustainability brings innovation because
sustainable driven business encourages the optimal utilization of resources,
efficient production with less energy consumption, innovation of improved
product as well as process and better relation with suppliers in terms of
developing of new efficient products. These all activities require creation of new
ways of innovative mechanisms which are in line with sustainable business.
Companies whether they are driven by sustainability or other business factors they
usually involve in innovation activities. They invest huge amount of time and
money in order to encourage their research and development department so as to
have innovative solutions (Julian 2011).
In the view of Jean-Marc and Bjorn (2004) sustainability is a guiding principle for
economic development. It is a means of fulfilling the needs of today‟s generation
without affecting the interest of tomorrow‟s generation (World commission for
environment and development 1987).
Hence in order to meet the interest of today without affecting future needs we
should have to involve in continuous innovation because resources are limited
24
energy sources are reducing rapidly like fossil energy sources. That means
innovation is a must for sustainable growth and development. Here we can
observe that sustainability strategies drive the innovation path of an entity.
Sustainability led innovation is also important for economic performance of a
company. If a company is focusing on reducing environmental effects by using
resources in an efficient way its financial performance will immediately increases
because profit is a function of cost and revenue. Consequently innovation can be
initiated by implementing business goals which have implicitly or explicitly give
more consideration for social and environmental protection and economic
prosperity (Jean-Marc and Bjorn 2004).
While a company is implementing sustainability goals it needs to involve in
rigorous innovation activities which ultimately require investment of ample
amount of money. So that environmental protection and economic development
sometimes may have inverse relationship i.e. in order to use resources optimally
and reduce negative environmental effects the company need to invest high
amount of money on innovation. Fussler (1996) stated sustainability need huge
continuous improvement on goods and services. Goods and services should be
produced in a way that reduces environmental effect and at the same time by
offering high satisfaction for the final users. On the other hand he stated high
amount of production and process improvement have also high impact on the
environment. Therefore companies need to make tradeoff between the extent of
investment on product improvement and its side effect on the environment.
In simple words innovation involves the creation of new products, production
process or services. When innovation considers or derived from the need of
implementing environmental protection it is considered as eco innovation. Eco
innovation is aiming to create improvement in the environment (European
commission 2009).
Sustainability also drives the need for environmental innovation which is the
creation and diffusion of technology or practice by taking environmental effects
(Buaner 2007). Social well being and environment can be sustained by
25
implementing high technologies which can use inputs efficiently and by reducing
energy consumption during the production process.
Tidd et al (2005) show the effect of sustainability on innovation as innovation
comes from day to day interaction of social, political and cultural issues. For
example global warming and treats, people health, environmental pollution,
population growth, climate changes and reduction of input availability have posed
great challenge to human beings. Due to this fact sustainability is compulsory
which in turn requires innovation so as to eliminate or at least reduce social and
environmental challenges (Tidd et al 2005).
The relationship between sustainability and service innovation becomes strong in
the long run plan of business entities. Because in their long run plan companies
need to think about sufficiency of resource and energy availability. If companies
improve resources consumption and increase capacities which can address the
problem of clean technology and eco effectiveness they can achieve long term
sustainability. So that in the long run the demand for sustainability will initiate the
demand for innovation (Hart 2005).
Sustainability is mostly associated with getting cleaner operations system which is
attained by minimizing of industrial wastes, using of efficient production system
and by involving innovation to improve energy or resource consumption.
Sustainability designing is expressed as strangle between white and black: it
means that good biological life cycle and bad industrial product life cycle
respectively. As we previously said development can be brought in different ways
but white development is the best. Companies can use innovation to create
sustainable business which should have reduced impact to the atmosphere
(Hopkins 2010).
Bringing sustainability through innovation requires investment on education and
dealing with cultural changes but the concept is not that much simple however it
is important to work on it in order to attain sustainable business. Companies
should give enough emphasis to economic, societal and environmental aspects
26
through efficient management systems which are concerned about innovation and
sustainability (Mclntosh & Arora 2001).
3.4. Sustainability and business innovation
Business innovation as we described in the previous part of this chapter aims to
create new ideas in order to enjoy lucrative profit by increasing market share and
it is also affected by sustainability. As population continuous to grow the
consumption of natural resources will also increases finally we may end up with
imbalance between demand and supply of resources. The effect of this is
overwhelming according to Ozor and Igbokwe (2007) which includes pollution,
loss of genetic diversity, soil degradation, desertification and deforestation.
It can be argued that continuous consumption of natural resources will have high
impact on the environment as well as the social well beings. The existence of
climate change issues and the problem of non renewability of fossil energy
resource demands new energy source (Nelson 2008). Teresko (2006) recommends
use of science based technology as a solution for the innovation of efficient or
new energy sources to reduce the impact on the environment.
Most industries and consumer good suppliers get energy from petrochemical
companies (Siham and Stephen 2010). In this respect innovation plays dominant
role by introducing Biotechnology in replacing fossil related energy sources
(Nelson 2008). Biotechnology, as Nelson (2008) stated helps to produce energy
by using inputs which are renewable, environmental friendly and usually
characterized by consumption of less energy when change in design occurs. So
companies can sustain their business by using new eco friendly energy sources
and new technologies.
Mostly business innovation is affected by customers demand for environmentally
friendly products and shareholders interest to collect large possible return from
investment.
Customer demand for new sustainable products therefore, will force companies to
develop new technologies through business innovation strategies. It can be
27
fulfilled by integration of different factor of productions including use of
improved ongoing technologies, well talented human power, sufficient capital,
natural resources and effective distribution channels. Therefore business
innovation can serve as a toll for transforming one society to new sustained way
of living (Elzen et al 2004).
3.5. Sustainability driven innovation
We have seen that innovation, either it is service innovation or business
innovation or any other form can be driven by sustainability. Therefore we will
consider the impact of sustainability on innovation without considering the
different types of innovation we explained before. Business entities invest high
amount of money on research and development to make business from new
technologies or just to give emphasis to environmental effects or to make
sustainable business. Therefore they always want to get new methods of
production which have fewer side effects on the environment and society.
Innovation as we discussed before can be driven by sustainability practices. These
days the extent of sustainable driven innovation has increased. Big companies has
increasingly make high spending on product and process innovation which will
consider both existing and future stakeholders interest however the stage of
development for sustainable deriving innovation is in its primary level (Little
2006).
Cecile et al (2001) classifies companies in to three groups based on their approach
to innovation and use of innovation for sustainability objectives.
Large companies: This group includes companies which are large in terms of
size and financial capacity and their involvement in the international
memberships. These companies include sustainability in their long term strategies
and invest large amount of money in sustainable innovation activities (Cecile et al
2001).
Innovation serves as a means of way out from rival competitions through
introducing new products, improving production process, reducing input costs and
28
reducing the environmental effect of production process and output by building
good environmental and social responsibility. They include innovation in to their
business strategy in order to minimize competitors influence on the market share
and sustainability is also one of the main agenda of their business strategy (Cecile
et al 2001).
Large companies consider service associated with the underlined products is a key
for sustainable growth. When services are included in the production process
waste to the environment will reduce because it allows the reuse of products.
Hence increase in servicing of products requires innovation which is derived by
sustainability. Companies also become advantageous by incorporating innovative
services to their business activity because it will reduce the impact of competition
in to their business (Cecile et al 2001).
As Cecile et al (2001) stated these groups of companies usually have a
communication strategy with stakeholders who are affected by the environmental
impacts. They will receive feedback from clients, employees, environmental
groups and others to have innovative solution in order to reduce environmental
pollutions. They make a lot of lobbying activities in order to convince others to
environment protection issues.
Small innovative companies: These are groups of companies which have a small
share in the market but they believe they are considering the environment in to
their products and production process. They think all stakeholders are not in the
position to take enough measures to protect the environment and these groups of
companies are in short of raising money to make lobbying actives. However as
Cecile et al (2001) pointed out they are doing as much as they can to protect the
impact on environment.
These business entities are investing considerable amount of money in their
research and development department primarily to maintain their market. They
give high consideration to environment along with their business activity and use
innovation as a means to overcome the problem of sustainability (Cecile et al
2001).
29
Other companies: Unlike to the about two groups of companies these groups do
not consider sustainability at least in the short run. Sustainability is not a primary
issue to be included in the business strategy but it is one simple aspect to be
considered. Generally sustainability driven innovation is not usually visible in
these types of companies compared to the above mentioned groups (Cecile et al
2001).
30
4. Empirical study
LEGO group has a large market share in the supply of toys and children play
materials. It distributed its products almost in 130 countries. Due to its large
market share and its activity the company can affect the environment as well as
the society. In this part of our thesis we will briefly look the actual data from the
company‟s website and various articles concerning sustainability, service and
business innovation and their relationships in case of LEGO group and we will
see if sustainability drives innovation in general.
4.1. Only the best is good enough
The company has implicitly started implementing of sustainability goals since the
start of its business. “Only the best is good enough” is the company‟s motto
towards its business and its sustainability goals. When a given company is starting
to launch its business activity it is obvious to expect high income for the
shareholders, however consideration to take responsibility to other stakeholders is
also compulsory because the company‟s activity will have impact on the local
peoples and the environment. The interest of stakeholders including local
communities, employees, customers, suppliers and others can be met by providing
them sustainable products and by reducing the negative impact of the company on
the environment and society. LEGO group believes only the best is able to meet
both the interest of shareholders and stakeholders. This is the reason LEGO group
defines its motto as “Only the best is god enough” (LEGO sustainability report
2006).
In this research we will look the empirical data on the company‟s website and
collect data by having a look at various articles and opinions made by the
company‟s respective personnel and other interested individuals. The company
has implemented various policies in order to create conducive atmosphere for
employees, owners, various environmental and social actors, government and
other stakeholders in general. Two of LEGO‟s policies which we will focus on
them in this paper are “environmental policy” and “people and culture policy”.
They are implemented to attain sustainability goals and helped LEGO group to
maintain friendly atmosphere with all interrelated stakeholders.
31
The environmental policy is formed by taking in to account of the entire
surrounding environment. The LEGO group‟s ambition with respect to the
environmental objective is to maintain a high environmental standards and it also
considers as a minimum requirement to respect national and international laws
which LEGO accepts. It considers the effect or impact of its business activity on
the global environment. While companies are doing their business in line with
owners‟ interest (maximization of profit) it does not usually consider the negative
effect on the society and environment. The entity incorporates the global
environmental principles in to its environmental policies. The people and cultural
policy determines LEGO group‟s interaction with various societies and defines
organizational culture and leadership (http://aboutus.lego.com/en-
us/corporate/responsibility.aspx).
4.2. Environmental policy and Innovation
In this research paper the main intention of the researchers is to look the effect of
implementing sustainability strategies on service innovation in LEGO group.
Sustainability motivates the innovation activity of a company because sustainable
business requires care for the environment and society along with satisfying the
owners‟ interest and our study further looks the corporate social responsibility
activity of LEGO group.
LEGO group considers the environmental promise during the manufacturing
process of toys and play materials. It is stated under the LEGO group‟s 2010
sustainability report that due to the increase of population and demand for its
products the need for energy and raw materials has considerably increased. The
increase in demand will pose in three fold challenge for the environment:
“scarcity of inputted resources, high energy demand and an increase in waste”.
LEGO group considers these challenges as highly important for the protection of
environment.
The main input LEGO group uses in the production process are plastic polymers
which require high energy during processing. Use of high energy in the
production process will affect the environment through the emission of carbon
32
and waste to the atmosphere. The company has focused on two strategies in order
to tackle this problem i.e. use of long durable products and assessing the existence
of unique compatibility however it believes these are not enough to cope up with
the increase in demand and consumption of resources. Hence in 2010 LEGO
group decided to implement new ways of sustainable driven innovative
production methods (LEGO progress report 2010).
The new method LEGO group adapted to sustain its business is called
“Design4Planet” (D4P). It is initiated by the idea Cradle to Cradle means “… a
production process where products are developed for closed-loop systems in
which every output ingredient is safe and beneficial…” and Life-cycle assessment
is “a process of evaluating the effects that a product has on the environment over
the entire period of its life thereby increasing resource use efficiency and
decreasing liabilities…” (LEGO progress report 2010, p 11) It gives more
attention for product design because production process and input used have a
material influence on the environment. It has set up new standards in the design of
production process by including environment and climate effects and opens
transparent dialogue with stakeholders. D4P program has been structured in five
projects which allow continuous adjustments throughout the project life and here
under we will discuss each part in detail (LEGO progress report 2010).
4.2.1. Material chemistry
This project tests inputs used in the production of LEGO items by using
standardization. Based on the standards, material chemistry project identifies
items that can be used in the production process and eliminate other items which
have unnecessary effect to the environment. The selection process of inputs is
made transparently by considering all stakeholders. During the purchase of
materials LEGO group work together with suppliers to identify innovative
solutions for inputs which have high impact on the environment (LEGO progress
report 2010).
33
The project work in cooperation with the existing manufacturing system which
focused on product safety, quality, legal compliance, technical and input problems
there by provide economic solutions (LEGO progress report 2010).
4.2.2. Environmental certification
Environmental certification project is used to check whether products are
environmentally friendly or not. In the coming ten years LEGO group has planned
to comply with voluntary environmental certification standards for all its products
(LEGO progress report 2010).
4.2.3. Reduced and compostable print and packaging
When LEGO group uses printing and packaging materials during production
process or for its products primary consideration for environmental effects is
given. D4P program looks for packaging and printing items used in the production
process which are long durability and easily recyclable (LEGO progress report
2010).
4.2.4. Design for disassembly
This project works to maintain zero level of waste by reusing of disassembled
products in the production process as a row material. Components are
manufactured by considering the reusability after their disposed. In this respect
LEGO group works in cooperation with suppliers of inputs to innovate reusable
materials (LEGO progress report 2010).
4.2.5. Return solution
LEGO group works to find solution for customers who want to dispose used items
in environmental friendly manner. LEGO products are structured to have long
durability. The return solution project deals with customers who want to dispose
of LEGO products after they are using them in environmental friendly manner
(LEGO progress report 2010).
Generally the environmental policy of the company is founded on three pillars i.e.
supporting a protective approach for potential environmental challenges, takes
large responsibility to promote environmental protections and promote the
34
development of environmentally friendly innovations. LEGO group has launched
new environmental policy in 2006 aiming of continual environmental
improvements through innovation. Innovation strategies include reduction of
energy and raw materials consumed in the production process and invention of
recyclable raw materials. These policies are laid up on employee empowerment
and considering environmental protection. LEGO group environmental protection
as the company says starts with the assessment of raw materials and chemicals
used in the production process in order to reduce the negative impact on
environment. To protect the environment LEGO group has used various
innovation mechanisms in which we will discuss them in detail below
(http://aboutus.lego.com/en-us/corporate/environmental.aspx).
Recycling: Plastic materials which are used in the production process or removed
by any reason are sorted out by plastic type and almost all is granulated and sent
to the recycling department to be used as a raw material in the production process.
Discarded plastics items which LEGO group is unable to recycle are sold to other
companies which have the capacity to recycle them. Only about 1.1% of the
discarded plastic materials are not being recyclable and it is forwarded to the CHP
plant for incineration
(http://aboutus.lego.com/en-us/corporate/environmental.aspx).
Selecting chemical substances: While in the process of production of toys and
play material LEGO group uses various raw materials and chemicals which can
have direct negative impact to the environment. During selecting of chemicals,
however LEGO group uses the safest available chemicals for the sake of
environment protection and creating of comfortable working environment for
employees. The group has continuously focused in the use of glue especially after
production plant is transferred to Czechoslovakia and the company states that it is
important to give due consideration for such chemical production in order to
insure the safety of the employees and the environment in general. In June 2007
European commission has issued a new legislation called “Reach” which focuses
on minimization of chemical effect in the society and environment. LEGO group
takes “Reach” as its minimum requirement for the wellbeing of employees
35
working in the glue production and for the protection of the environment
(http://aboutus.lego.com/en-us/corporate/environmental.aspx).
Energy consumptions: The global sustainable development challenge is mainly
caused by the carbon emission from various industries. The extent of emission
could vary from industry to industry or the type of energy used during the
production process. LEGO group uses extensive amount of electrical energy in
the manufacturing process- plastic raw materials should be melted, casted and
cooled in the production of LEGO bricks which requires use of high amount of
energy which will contribute to the global warming problems. The effect may
vary with the type of energy source used. Renewable energy source are better than
non renewable energy source in terms of emissions. LEGO group uses renewable
energy sources in some factory site for example in 2005 28.5 per cent of
electricity utilized were produced from renewable energy in Denmark. LEGO
group also work with external forwarding companies which transports its raw
materials and products because it considers the emissions of logistic companies is
high (http://aboutus.lego.com/en-us/corporate/environmental.aspx).
Continues long term improvement: - Sustainability requires investment on
continuous renewal and improvement activities on products and production
processes. Innovation has direct benefit to protect the environment since improved
method of production and new technologies minimizes the amount of inputs used
and effect of production process to the environment. LEGO group continuously
strives to gain improved methods of production aiming that protecting of
environment is necessary for development. During every day production process
it largely focuses on utilization of energy, inputs, wastes, procurements and
innovations. The company has a policy which dictates that all production location
should be build in accordance to the international environmental management
standards ISO 14001 and all its production places are certified with this standard.
The environmental activities will always be monitored and evaluated every
quarter and adequate measures or changes are continuously undertaken in case
something is went wrong (http://aboutus.lego.com/en-
us/corporate/environmental.aspx).
36
Products: - LEGO group considers the environmental impact throughout the
product development process until the disposal stage of the products. It gives due
consideration to the manufacturing process and to products when they are in the
hands of users. Finally it has considered the environmental impact by looking
further the disposal of used toys and play materials (http://aboutus.lego.com/en-
us/corporate/environmental.aspx).
Our environment can be affected by the direct output of companies or through
their production processes. Basically some outputs are not easily decomposable or
are not recyclable after their disposal; this would have destructive impact on the
global environment. Inherently some production process eject large amount of
carbon to the atmosphere compared to others. These days innovation has
contributed for the creation of products and production processes which could
have less effect to the environment. Therefore, if every business organization
takes due consideration on the design of products or production lines the
environment can be protected
Suppliers: - Environmental issues are the concern for all stakeholders as far as
LEGO group is concerned. Both big as well as small companies could bring
environmental influence perhaps the major contributors of carbon to the
atmosphere may be large manufacturing and energy producing companies. The
day to day interaction with suppliers and customers, production processes,
distribution of products and disposal of old or used products of entities can have a
material influence on the environment. Hence companies could affect the
environment in different ways.
So a company could have interaction with a lot of stakeholders such as suppliers,
customer, employees and others. LEGO group has incorporated environmental
standards in to its code of conduct to be used by suppliers of raw materials and
energy. It actively communicates with its suppliers so as to maintain
environmental protections. It works with suppliers to increase environmental
awareness and practices by implementing on site audit and continuous dialog with
them (http://aboutus.lego.com/en-us/corporate/environmental.aspx).
37
Responsibility: - Each employee of LEGO group has the right to call attention in
case if he believes that the activities of the company are in such a way that affects
the environment. LEGO group takes consideration for the environmental issues in
all its production process and in its activity in general. It involves employees at
various levels to take environmental responsibilities and participate in
environmental protections. An employee can report his comment directly to the
local environmental protection authority or the responsible managers of the
company (http://aboutus.lego.com/en-us/corporate/environmental.aspx).
4.3. Social policy and Innovation
The world can be the safest place to live if individuals or groups of individuals
and companies work to protect the environment and the society. LEGO group
work to protect employees, customers, local communities and other stakeholders
from any harm it might happen during its business undertakings. The group
considers as a minimum requirement all national and international regulations
regarding issues of corporate social responsibilities.
Safety and health environment for employees: - It continuously inspects work
place for the well being of employees and management staffs. It takes as a
minimum requirement the national laws of a country where it operates and
international regulations concerning employee safety. The LEGO group always
strives to create the most favorable working environment for its employees.
LEGO group believes that it is its responsibility to implement a healthy working
condition for its employees. As employees being the major stakeholders of the
company it is compulsorily to create a healthy working environment
(http://aboutus.lego.com/en-us/corporate/healthsafety.aspx).
Work planning: - A company can create conducive working environment for its
employees in different ways. Work planning in LEGO group is made in such a
way that balances demands and available labor resources. When the demand
towards the performance of each employee agrees with the available human
resource the stress on employees can be minimized and the safety for employees
will be respected. Working environment is continuously evaluated and
38
improvement is made when it is required. Every quarter the working condition for
employees should be checked against the rules and regulations of the company or
any national or international laws where LEGO group is operating. Each
employee has the right to comment on working condition and give his opinion
either directly to the local safety and health authority or the respective line
manager (http://aboutus.lego.com/en-us/corporate/healthsafety.aspx).
Relation with other stakeholders: - The expectation from the society increases
when the company gets bigger and bigger. The responsibility of the company to
the society is high when it operates in a large scale because it uses large amount of
resources, it will also have large output and it will have a lot of day to day
interactions. The final output of all manufacturing processes ultimately produces
the main product and byproducts. Both main products and byproducts could have
an impact to the society well beings because in the production process there will
be a use of chemicals as raw materials or any other forms. So that entities should
have a lot to do for the society in order to sustain their livelihood. This in turn
creates high expectation by the society and requires companies to assume high
responsibility.
LEGO group undertakes responsibility to the society when working its businesses
and also considers all manufacturing places it operates. The company explicitly
states in its sustainability report, as “We will continue to be responsible,
trustworthy and adhering to the principles of Global Compact” (Sustainability
report 2006, p 27).
Support children learning:-LEGO group innovate a new learning system for
children. LEGO group products are structured in such a way that enables children
to solve complex problems by themselves at the same time they can have
enjoyment by using these items. This is a unique system which LEGO group
creates to helps children mental development throughout their lives (LEGO
progress report 2010).
The group in its education program strives to invent products which can empower
creative and problem solving skills to children. Most of the products are planned
39
to be used in group therefore it will encourage team work. It also focuses on
children at their early development stages and it gives high consideration to
mathematics and technology fields which LEGO group believes it is the most
difficult field of studies to understand for minors. As LEGO group pointed out
children give more attention for activities which are accompanied with funs and
challenging works. The company works with different international educational
institutes in different parts of the world for example in USA it works with
Carnegie Mellon University‟s Robotics Academy in Pittsburgh and Tufts
University‟s Center for Engineering Outreach (CEEO) in Boston (LEGO
sustainability report 2006). LEGO group products are designed to help children
creativity by encouraging them to use their hands and develop their motor skills
(Datamonitor 2010).
Robot competition and education centers: - Children are the main focuses of
the company; LEGO group gives high emphasis for the development of children
especially in science and mathematics fields. It has set up LEGO mind-storms
Robot competition and LEGO education center in different countries for the
recreation and development purposes. In the first league Robot competition
children of age 9-16 are involved and it is organized with the support of US non-
profit organization to boost interest of children to the fields of science and
mathematics by inspiring them with challenging robot games. Every year the
competition is held in different parts of the world for instance in 2006 the
competition was titled as “Nanotechnology” 9,000 teams were involved in 37
countries (LEGO sustainability report 2006).
The entity has organized various education centers throughout the world which
are planned to contribute alternative recreations for school children in addition to
the education system they provide. Generally the main objective of the education
centers is to provide learning and development of children‟s independency,
creativity and communication skill here LEGO bricks contribution to educating
children in Asia can be taken as an example. These centers have trained staffs
which help children by providing guidance on how to use products (LEGO
sustainability report 2006).
40
Charity: - LEGO group involves in charitable activities to promote the right and
living condition of children and opens opportunity for children creativity and
learning. It also works by evolving its employees on charitable activities in case of
natural disasters and helping others who are in trouble. For instance in USA 2006
it has helped the activities of rehabilitation of schools and children affected by the
hurricane Katrina. The LEGO group has donated 1.6 million Lego bricks in New
Orleans (LEGO sustainability report 2006).
Employees of LEGO group are actively participating in the charitable activities.
LEGO Italy employees have participated in distribution of Charity boxes for
L‟Aquila residences affected by the 2009 earthquake (LEGO sustainability report
2006). We can take as an example also the donation of 1,000 LEGO sets to
orphans in Russia by the children of LEGO employees in Hungary and Denmark
(LEGO progress repot 2009).
4.4. Innovation and Business activity
Large international companies have enjoyed a lucrative profit through different
means such as innovation, increasing sales level, price or engaging other line of
businesses. Innovation in the business has contributed a lot for the development of
the company. It has also contributed for the protection of the environment by
reducing the resource used in the production process and by reducing the wastes
through innovation of recyclable products.
LEGO group has shown a remarkable increase in the financial performance and
result of operations. Gross sales and net income for the last couple of years where
the world economy is affected by the financial crises has increased continuously.
The group‟s income before tax has shown an increase by approximately 69 per
cent in 2010 compared to the previous year. The market share especially in
Europe and US has also increased considerably in every single year compared to
the past years. LEGO group has about 8,365 employees at the end of 2010. As its
gross income over the years is continuously increased its tax payment for the
government is also increased (LEGO annual report 2010).
41
The major share of the company‟s income is generated from the sale of LEGO
City, LEGO DUPLO and LEGO star wars. The income from these diversified
products is increased considerably.
LEGO group in this respect involves its customers in the business innovation
activity. This helped the company to have more business success especially in US
market. One of the most popular products of LEGO group is LEGO mined
storms. The company included programmable motor in this product with plastic
parts. This program helped customers to customize their own LEGO design which
could move. Later the program was hacked and unauthorized modification was
made to make LEGO to do other tasks. At that time the group‟s personnel was
decided to stop the action on the ground of an illegal action. However the
company by reconsidering its decision it launches the software to clients so that
enables customers to make their own program and watch what they like. This
program was an entirely success for LEGO group‟s service innovation activity
(Henry 2011).
This innovative open approach brought implementation of new middle school
curriculum in United State to help children understand robotics by using LEGO
group‟s products. “Students were now learning about programming and design,
building LEGO vehicles to follow a track on the floor or shoot a ball through a
basket”, p, 88. In the software clients were given different challenges to compete
each other by developing their customized program. In such a way LEGO group
have innovated a system which is contributing a lot on the creation of middle
school science and technology teaching program. An open innovation system
LEGO group used to succeed in service innovation in United State market is
called Bringing the Outside in approach (Henry 2011).
4.5. Code of conduct and sustainability
LEGO group formulated its own code of conduct in 1997 which consists of a set
of guidelines for itself and its suppliers in order to protect the environment as well
as the stakeholders around the business. The code is more stricture than any code
in a vendor‟s country. LEGO group code of conduct is primarily made to ensure
42
vendors work is in compliance with International Labor Organizations (ILO)
manual. The company also requires vendors to give written assurance about their
suppliers‟ compliance with the LEGO group‟s code of conduct (LEGO code of
conduct).
The code is also serving as a guideline for the proper implementation of
sustainability activities of the company because LEGO group sets its social and
environmental responsibility by considering its moral and ethical values of the
code.
In 1999 UN has issued a Global Compact initiative to support the business
community in the making of sustainable business. LEGO group is the first toy
manufacturing company to join this initiative in 2003. The group strictly follows
the initiative and recommends its vendors to follow it consistently. The Global
Compact initiative comprises of ten principles which are categorized in to four
parts: human right, labor right, environment and anti-corruption (LEGO code of
conduct).
As this initiative focuses on ethical protection of both social and environmental
goals it is important for LEGO group to practice it for its sustainable development
and CSR strategies. The group strictly adhere the initiative for its own practice as
well as for its vendors.
LEGO group is also member of the International Council of Toy Industry care
process (ICTI) which is part of the ICTI initiative responsible for the development
and well being of the society. The aim of this initiative is to implement an ethical
production process comprises of fair labor treatment and safe working conditions.
The company support and implement the ICTI care process and it obliged its
vendors to practice the initiative to create safe environment for employees. So
that the LEGO group‟s code of conduct will affect suppliers but the requirement is
only the ICTI care process and vendors who follow the initiative receives a Seal
of Compliance (LEGO code of conduct).
43
The code of conduct also talks about the environmental protection. It instructs
both the company and its supplier‟s compliance for local laws and regulations
regarding environmental protections. The code explicitly dictates for the
existence of a system both in LEGO group and its suppliers to reduce waste,
energy and emission, use inputs in environmentally friendly way, dispose wastes
in safe way, help for reuse and recycling of products and innovate environmental
friendly technologies (LEGO code of conduct).
Most of these days problem concerning sustainability is lack of adequate
initiations to take practical actions by companies. We believe that if sustainability
practices are supported by ethical values and if strong initiation is included the
effect on society and environment can effectively be minimized. Hence
implementing of a code of conduct which can consider societal value and
environmental protections is ultimately a tool for getting sustainable society,
environment and business.
44
5. Data Analysis
This chapter deals with the analysis of the data collected from the company‟s
website or from articles wrote about LEGO groups activity regarding
sustainability and innovation in general and service and business innovation in
particular. As we have seen in theoretical part both service innovation as well as
business innovation are affected in the same way by sustainability so we will
make no distinction between the two when we analyze the data.
We will analyze the empirical data collected about the company‟s sustainability
and service innovation by taking various articles and literatures described under
our theoretical part as a frame of reference.
5.1. Sustainability in LEGO group
LEGO groups business activity is guided by an interesting motto which can be
applicable to any sort of human activity: Only the best is good enough, In LEGO
groups perspective any activity including business, sustainability, innovation,
charity or any other will be achieved if we are exerting to use our resources and
energy in the best way possible. The company‟s profit is increasing continuously,
its market share is also getting bigger and bigger and its innovation has helped to
create brand loyal customers since it is managed and operated by best creative
people throughout its live for 80 years. During the recent recession the company is
getting large amount of income when other companies are affected badly due to
loss of market this happens as LEGO group‟s thinking because of the existence of
innovation and the existence of best way of thinking and management in the
company.
The company is continuously increases its effort towards sustainability and it has
started issuing sustainability report in 2006. The environmental policy and people
and cultural policy are the implications for the increase in effort towards corporate
social responsibility. Its environmental policy as it takes the countries and local
rules and regulations where the company operates as the minimum requirement
and it is formed by considering the global environmental principles the company
has implemented good sustainability strategies in reference to WBCSD. WBCSD
45
expresses sustainable development and corporate social responsibility as existence
of ethical responsibility of the environment and society by simultaneously
engaging in value adding business activities. LEGO group‟s motto “the best is
good enough” and inclusion of environmental responsibility as one of the
ingredient in its code of conduct are the implication for its responsibility. When
LEGO group involves in sustainability it consider its effect to the environment
and society in the best way possible in order to respect its motto: the best is good
enough. The people and cultural policy shows the strong work of LEGO group
towards corporate social responsibility.
The company‟s work on philanthropic activity is so much motivating because it
also involves its employees in the charity program when natural disaster affects
some areas. In United States in 2006 societies were affected by hurricane Katrina
and in Italy in 2009 there were an earthquake affecting many people during all
these times LEGO group staffs and the company itself were the major contributor
of charitable items. This is important example of LEGO group‟s activity towards
corporate social responsibility.
5.2. Innovation for Environment
Here when we say innovation we are referring to service and business innovation
but as we stated in the previous parts we will not make any distinctive difference
between the two parts because we have seen in the previous part that they are
driven in the same way by sustainability.
Since LEGO group‟s products are highly using plastic polymers it needs high
energy to melt and form the desired mold. The entity always work on creativity
and innovation of new ideas and ways of providing goods and services to its
clients and to improve its profitability we can take as an example the LEGO
mined storms which is a program allows customers to form their own LEGO
design with plastic parts. The two strategies the company structured: use of long
durable products and assessing the existence of unique compatibility are for
answering its environmental responsibility requires innovation of new ideas and
concepts otherwise it cannot be attained with the existence of limited resources
46
and input energy. To produce LEGO products which have long durability and to
associate unique compatibility it needs creating of new ideas and implementation.
Sometimes therefore innovation becomes the only solution to implement
sustainable development and corporate social responsibility. We have observed
that LEGO group corporate social responsibility need drives the need for
innovation.
Design4Planet (D4P) is the activity to innovate solution for the sustainability
problems LEGO group implemented. One of the determinant factors for the
implementation of innovation is ambition to formulate clean environment. The
five projects under Design4Planet program are the response to environmental
protection demand of LEGO group. As LEGO group becoming giant company
operating in global market its interested groups are too many. So that its
sustainability activity is affected by internal demands for implementing
environmental responsibility and external stakeholder need the LEGO group to
compensate its side effect to the environment.
One of the projects under the Design4planet which focuses about restructuring of
materials and resources used in the production process is material chemistry. This
project is mainly aimed to identify and innovates inputs which can have the least
side effect to the environment. This can show the increasing trend of LEGO
group towards sustainability driven innovation. LEGO group consulted resource
suppliers about how to innovate inputs which could have less damage to the
environment. This will help the company to construct innovative solutions for
sustainability.
The environmental certification project also work to enable LEGO group to use
and produce environmentally friendly items in its operation starting from
inception of ideas to delivery of final products to customers. As an example we
can the groups ten years plan to respect all voluntary environmental certification.
The special feature of this project is the company instructs and helps its suppliers
of raw materials to involve in innovation so as to produce materials which have
less effect to the environment. Design for disassembly project is the other type of
the Design4planet program which works on the innovation of products which can
47
be used as raw material after their disposal. In this project LEGO group works
with its customers in order to create items which can be used again as a raw
material instead of discarding and producing new genuine item.
LEGO group also listen its customers who want to dispose used LEGO items in
an environmentally friendly manner. That is the reason the group formed a project
called Return solution. This is good base for sustainable driven innovation to
emerge because customers are the source for the life of profit making business
organizations. Customers demand initiate the design for sustainable strategies
which in turn drives the innovation activity of the company.
The fifth project is about printing and packaging materials used in the production
process. It is intended to innovate long durable, easily recyclable items and use as
much as possible small amount of packaging and printing items. When materials
used in the company are long durable and easily recyclable we can protect our
environment. This can be achieved by investing on research and development
program perhaps it may need too much spending but the long run benefit will be
extraordinary for both the company and the environment.
Generally we can see from the LEGO group‟s Design4planet program innovation
can serve as an instrument for creating sustainable environment because the
project is formed to solve the problem of the current scarcity of resources,
increased energy need and wastes by implementing innovation in to its production
process as stated under its 2010 progress report. It is explicitly stated as “… now
is the right time to start re-thinking the way we design our products and processes
to sustain and develop our business in the long term” (Progress report 2010, p 10)
this restructuring is required after a long time use of the previous methods of
production. Recently sustainability has got greater emphasis which gives birth to
sustainability driven innovation. Meaning one of the driving factor for innovation
in LEGO group as we can observe from Desig4planet is the need for
implementing sustainable development and corporate social responsibility.
One of the three environmental policies of LEGO group is encouraging of
environmental friendly innovations. This program includes investment on
48
invention of easily recyclable materials used in the production process for
instance only about 1.1% of the total discarded materials is not recycled in 2010.
The group‟s activity to work with its suppliers, customers and forwarding agents
to create energy efficient means of production and distribution the 2005
consumption of renewable energy sources in the production process in Denmark
as we put in the previous chapter was 28.5% which is pretty good to protect the
environment. It works closely with logistic companies who transports its inputs or
output this is helpful to reduce the emission by innovating clean energy sources.
As LEGO group products are manufactured by considering their energy
consumption, durability and easily recyclability effect on the environment can be
minimized and it can be a solution for optimal utilization of limited resources. As
Vidhya and Chris (2004) stated innovation serves as a solution for environmental
degradation caused by increase in population and consumption of resources and
energy.
To make practical all the above plans of LEOG group the company has involved
continuous long term improvement activities which identifies and sparks new
ideas and concepts for production process which can have friendly interaction
with the environment. University of Cambridge (2008) stated innovation is
required to produce high quality of goods and service by considering environment
and society as well, LEGO group is enjoying lucrative profit by its high quality
products which has also considers the environment effects. Therefore in case of
LEGO we can observe that innovation can be driven by sustainability.
One of the stakeholders who have direct and every day interaction with the
company are employees. Employees could have sufficient knowledge about the
company‟s sustainable development plan more than any other stakeholder even
more than the owners. Therefore, employees have some valuable thing to say
about the contribution of the company towards the environment whether it might
be positive or negative. This is very important point to underline because it
protects the environment before something bad happens: when employees have
the right and encouragement to inform about the company‟s sustainability activity
to the external responsible person the environment can be protected in advance. In
49
this respect LEGO groups work to give responsibility for employees must be
appreciated.
5.3. Innovation for Society well beings
Innovation can be used as one means to create sustainable environment, we have
seen this fact in the previous discussion of the chapter specifically in case of
LEGO group. In this part we will look innovation as a means to society well
beings particularly in LEGO group.
The group‟s activity in supporting of children education and creativity is valuable
thing for the society. Children are mostly attracted with funs and play materials.
When the education system is associated with such play materials or it is involved
some funs it will result important development of the children as well as the future
generation in general since children are the building block of the future
generation. LEGO group has structured its products in order to enables children to
solve complex mathematical and scientific calculation by associating with
enjoyments. The group‟s education program to teach about technology and
mathematics gives children an easy problem solving ability and boosts their
creativity. As we mentioned in the previous chapter LEGO bricks or play
materials are structured to be used in the group so it is helpful for children to
adopt team work skills.
Children at their early development are curious and alert for new skills so when
they are trained with problem solving skills, creativity or team work skills they
gain life time education so that the company‟s activity to work with children at
this age is encouragement and important for the society. Hart (2005) stated that
sustainability driven innovation becomes more strong in the long run plan. LEGO
group education program focus on innovation of items for children creativity and
development is the sustainable driven innovative activity which will lead building
of the future generation in concrete manner. For instance the company works in
cooperation with Carnegie Mellon University‟s Robotics Academy and Tufts
University‟s Center for Engineering Outreach in United States to teach children
such types of skills.
50
LEGO group has set up a Robot competition and education center in different
parts of the world it will motivate children to participate in mind storm Robot
competition. Children are categorized in to different groups with the intention of
providing them strong competition with the same age. In 2006 participants were
9,000 from different parts of the world. The computation is held with the
cooperation of the local nonprofit organization. The education centers are now
operating also in large scale in Asia market which has the same intention as the
Denmark and United States centers. LEGO group‟s creativity to involve children
in various Robotic computations has been set up in the intention of discharging its
duty and responsibility in creation of sustainable society. Base on Cecile et al
(2001) classification we will therefore put LEGO group in the category of Large
companies because it is characterized by spending large amount of money for
sustainability activities and putting sustainability driven innovation as one of the
major component of its business plan.
The fact that sustainability and innovation cannot be seen separately recently it
can be seen in the LEGO groups activity. Hart (2005) said when we start to think
about sustainability we immediately start to think about creating renewable, clean
and zero waste environment and society. These activities so requires technological
innovations.
Generally we can observe form the LEGO group‟s activity that it is working to
create sustainable environment and sustainable society. It has also invested huge
amount of money for research and development which have generated large profit
for the company. Its sustainability ambition is one driving factor for the group‟s
innovation activity.
5.4. Innovation for business
Innovation will also serve as a mean to increase the companies‟ wealth. Large
international companies are extracting their income from the result of their
research and development activities. The recent surprising events of the world in
business organization are to invent new things and attract large customers. LEGO
group in this respect is known with its creative work of customized software
51
where any customer can play and develop its own program by using
programmable motors by using plastic parts. LEGO mined storm is one of the
product which have such features which allows customers to develop their own
program by using the software it is the first practice in the Toy and play materials
industry. Like other companies the group was highly affected by the latest crises
special in 2004 but thanks to its research and development section the creation of
such programmable software immediately gives it surprisingly lucrative profit.
This innovation has also helped Schools to incorporate new education curriculum
in United States which assists children to understand Robotics by using LEGO
group products. In this curriculum children compete each other and learn about
mathematics and technology in particular.
Above all, the significant factor we consider in the development of LEGO group‟s
sustainability strategy is the inclusion in its code of conduct. When any plan or
program in a company is associated with moral or ethical values its result will be
significant better than guided only with a controlling system. Of course
controlling system has also its own advantages but its implementation without
some ethical and moral values will not bring the expected result.
The company‟s code of conduct contains moral and ethical values which should
be followed by employees and the company itself. It also instructs its vendors how
to implement social and environmental responsibly and it also encourages vendors
to respect the code and follow other international initiations which are dictating
about sustainability.
The group‟s interest to protect the environment and society can also be seen from
its activity to be a member in international association working in protecting of
environment and society and its motivation to respect the associations‟
instructions. In LEGO group‟s terms it says it will strictly respects and encourage
vendors to respect strictly the initiatives. It is because of that LEGO group
becomes a member initiative like UN Global Compact initiative and International
Council of Toy Industry. Since both these international organizations work on
52
sustainability the group takes its primary initiation to become a member and
encourages its vendors to respect the initiations.
LEGO group instructs its suppliers to follow strictly the International Council of
Toy Industry manual. This can have also interesting result in the creation of
sustainable society, environment and business.
Finally based on the literatures and company‟s data from articles and website we
have found that LEGO group is a company which works very strongly with
sustainable development and corporate social responsibility. It also uses
innovation to implement sustainable development activity.
53
6. Conclusion
In this part of the study we will present our conclusion based on our findings and
analysis based on the data we collected throughout the research process. The
Authors believes sustainable development and corporate social responsibilities are
the important concepts raised these days. Great emphasis should be given for
these concepts. However the extent to which most big international companies
deal with these issues is very limited.
Sustainability can be enforced through different means it can be by implementing
strong rules and regulations, encouraging of innovation of new ideas and
concepts, use of renewable resources or any other means. Innovation as most of
these day companies use supports the sustainability strategy of governments, non
government agencies and business entities.
LEGO group being one of the big international companies of toy and play
material producer, its production process is mostly associated with use of petro
chemical raw materials and its products are distributed in almost every corner of
the world it can have a huge contribution in the creation of sustainable society,
environment and business.
Based on our finding and analysis we have seen that LEGO group is contributing
a lot to enforce sustainability. It is working with sustainable development and
corporate social responsibility issues. We consider as a special element the LEGO
group‟s strictly adherence with international and local initiatives who work with
sustainability and its cooperation with vendors. We will therefore conclude that
LEGO group is effectively working on creation of sustainable society,
environment and business.
As we have discussed before innovation has a major role in the creation of
sustainable world. The reason most companies are investing huge amount of
money in research and development recently is to get innovative solution for
sustainability. Finally, therefore based on the data gathered the authors
understand that LEGO group is actively working on sustainability and its
sustainability activity is also driving its innovation strategy.
54
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