The Influence of Sustainability Orientation on Portfolio Innovativeness in Manufacturing and Service Firms

Abstract

Academic Summary

Firms increasingly adopt a sustainability orientation in response to regulatory, competitive, and customer pressures. We examine how this orientation shapes innovation portfolio management (IPM) outcomes. Using a cross-industry, multi-informant survey of 115 innovation portfolios, we show that sustainability orientation positively relates to portfolio innovativeness, and portfolio innovativeness partially mediates the relationship between sustainability orientation and portfolio success. Further, the effect is stronger in manufacturing than in service firms. Our findings extend prior research on the role of sustainability orientation in innovation management. By showing that a pronounced sustainability orientation is positively associated with portfolios of more innovative projects, we challenge insights that sustainability orientation leads primarily to incremental improvements. Further, we contribute to the literature on strategic orientations in innovation portfolio management by introducing sustainability orientation as a crucial factor for portfolio decision-making. We conceptualize sustainability orientation with strategic, structural, and cultural dimensions, offering a more holistic understanding than existing conceptualizations. Finally, we highlight an important boundary condition by showing that the relationship between sustainability orientation and portfolio innovativeness varies between service and manufacturing firms, contributing to the debate on sustainability-driven innovation across sectors.

Managerial Summary

The results of this study suggest that a strong sustainability orientation, which is embedded in strategy, culture, and portfolio controls, is connected with more innovative and, eventually, more successful innovation portfolios. The effect is stronger in manufacturing than in services. Translating intent into outcomes requires integrating sustainability into portfolio decision making. Gate criteria, funding rules, and regular reviews should include clear sustainability KPIs. At the strategic level, a sustainability strategy that complements the core business strategy reduces conflicts and prevents symbolic adoption. At the cultural level, leaders model priorities and create channels for employees to share values and co-define how sustainability shapes offerings and processes. At the structural level, project- and portfolio-level performance controls keep attention on outcomes rather than slogans. Manufacturing firms can expect larger gains from a strong sustainability orientation and may leverage regulatory and technological shifts to back higher-novelty innovation projects. Done this way, sustainability can become a repeatable practice that lifts portfolio innovativeness and success.