Business Models for Sustainability

Gavin D. J. Harper

What is a Business Model?

“a conceptual tool that contains a set of

elements and their relationships and

allows to express the business logic of a

specific firm.” (Osterwalder & Pigneur 2002)

“stories that explain how enterprises

work”(Magretta 2002)

Business Models Literature

• Clarification of the „business model‟ concept;

– Alexander Osterwalder, Yves Pigneur & Christopher L. Tucci (2005) Clarifying Business Models: Origins, Present and the Future of the Concept, Communications of the Association for Information Systems

– Jonas Hedman & Thomas Kalling (2003) The business model concept: theoretical underpinnings and empirical illustrations European Journal of Information Systems 12, 49–59

Business Models Literature

Value

proposition

Value

configuration

Cost

structureSuccess

Partner

network

Distribution

channel

Revenue

streams

Customer

relationship

Customer

segment

Core

capabilities

OFFER

FINANCE

CUSTOMERECO-SYSTEM

Adapted from Osterwalder: The Business Model Ontology

Sustainable Business Models

• Unsustainable business models focus on

extracting value from their environment, and

from society. Profit is a nil-sum-game.

• Sustainable business models focus on adding

value to stakeholders, the environment and

society. Profit adds value.

Integrating Sustainable Development Into The Business Model

Investigating Internalizing Integrating Innovating

Adapted from: Birkin, F, Cashman, A, Koh, S.C.L., Liu, K., (2009) New Sustainable Business Models In China Business Strategy and the Environment, 18, 64-77

Capability and Understanding

Commitment

Partnerships

The process of improvement

Business Models for Sustainability

• Many sustainable innovations make economic

sense over the whole life-cycle, but high capital

costs deter early adoption.

• Business models that can amortise the higher

capital costs of sustainable innovation over the

lifecycle of the product can help bridge the

gap.

Business Models for Sustainability

• There are also challenges with bringing some

innovative ideas to market – crossing the

chasm.

• Business model innovation can be cheap (can

be done on a beermat) whereas technical

innovation is often expensive (extensive R&D).

Crossing the Chasm

THE CHASM

Can business model

innovation help?

Business Models Literature

• “Appropriately designed business

models are an important opportunity to

overcome some of the key barriers to

market diffusion of sustainable energy

technologies.”

(Wüstenhagen & Boehnke, 2006)

Business Models Literature

“A mediocre technology pursued within a great business

model may be more valuable that a great technology

exploited via a mediocre business model”

Henry Chesbrough

Great Technology + Rubbish Business Model ≠ Sustainable Innovation

There is a need for BUSINESS MODEL INNOVATION

Great Technology + Kick Ass Business Model = Clean Green Future

Linear Commodity Chains vs. Cyclical Commodity Chains

Production

Use

End of Life

Remanufacture

Extraction

Extraction Production Use End of Life Disposal

By creating cyclical commodity

chains where products are taken

back, remanufactured or recycled

by the original manufacturer,

materials can be kept in a “closed

loop”, not squandered as in a

linear chain.

Non-ownership business models

• Whilst we have a culture of “ownership”, is

owning physical items sustainable in a world of

scarce resources.

– Riversimple; purchase “mobility as a service”

rather than „buying a vehicle‟ – incentive for

vehicle manufacturer to make existing vehicles

more efficient.

– Chemical leasing; more efficient resource use –

benefit to chemical provider in recycling.

Dematerialization

• Removing the need for increased consumption

of physical assets by substituting physical

goods with „virtual goods‟, or by consuming a

„service‟ rather than a „physical product‟.

– Apple iTunes (Does away with physical CD‟s)

– Amazon Kindle (Does away with physical books)

– Interface Flooring (Selling flooring as a service)

New Business Models Can Provide Equity To Those At The Bottom Of The Pyramid

0.5 bn

2 billion

4 billion

Population

Mature markets: >$20,000

Emerging markets: $3260 to $20000

Survival markets: <$3260

Data: World Resources Institute

The ‘Bikini’ Business Model

• Sell less, make more.

• Can you make the

consumer pay the same

amount of money, for less

physical product, whilst

getting greater perceived

value?Higher perceived value than

a ‘Victorian Bathing Suit’,

less physical product!

The ‘Qualifying’ Business Model

• Leverage relationships with customers and

suppliers to support sustainability.

• Set „key qualifying criteria‟ as a component for

determining supply chains and target

customers.

– E.g. Triodos Bank – Will only lend to economically

viable businesses that produce explicit social or

environmental benefits.

Open Innovation

• Less focus on keeping IP in-house.

• Sharing has benefits.

– GreenXchange virtual marketplace for

sustainability IP

– Nike‟s Environmentally Preferred Rubber

• Sharing IP relating to reduce-toxins rubber for use in

trainers, in the hope that it could be useful to other

industry sectors.

It is easy to get ‘stuck’ in old patterns of thinking.

• “as „best practices‟ turn into „worst practises‟ and

„core competencies‟ turn into „core rigidities‟” (Maholtra n.d.)Knowledge Management and New Organisation Forms: A

Framework for Business Model Innovation.

Challenges – How to overcome:• Institutional lock-in

• „Not invented here‟

• Large sunk investments in existing technologies

• Entrenched bad practices

• Preconceptions about sustainable technologies

Business in the service of Sustainability

FOCUS ON THE CUSTOMERS NEEDS NOT THE PUBLIC GOOD!

• “focussing the value proposition on the aspects

that create the highest (private) customer value,

rather than primarily highlighting the public

benefits of sustainable energy, is a means to

address the challenges posed by environmental

externalities.” (Wüstenhagen & Boehnke, 2006)

Business in the service of Sustainability

Business will drive the sustainable technology revolution...

“Some regard private enterprise as if it were a

predatory tiger to be shot. Others look upon it as

a cow that they can milk. Only a handful see it for

what it really is - the strong horse that pulls the

whole cart.”

Winston Churchill