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D1.2
Version: 2.0
Date: 2013-12-20
Author: VTT
Dissemination status PU
Document reference D1.2
Towards sustainability governance in value networks
Project acronym: SustainValue
Project name: Sustainable value creation in manufacturing networks
Call and Contract: FP7-NMP-2010-SMALL-4
Grant Agreement no.: 262931
Project duration: 01.04.2011 – 31.03.2014 (36 months)
Co-ordinator VTT VTT Technical Research Centre of Finland (FI)
Partners: POLIMI Politecnico di Milano (IT)
UiS Center for Industrial asset management, University of
Stavanger (NO)
FIR Research Institute for Operations Management at
RWTH Aachen University (DE)
DIN DIN, The German Institute for Standardization (DE)
FIDIA FIDIA (IT)
Riversimple Riversimple LLP (UK)
CLAAS CLAAS Selbstfahrende Erntemaschinen GmbH (DE)
ELCON Elcon Solutions Oy (FI)
UC University of Cambridge(UK)
This project is supported by funding from the Nanosciences, Nanotechnologies,
Materials and new Production Technologies Programme under the 7th Research
Framework Programme of the European Union.
Project no. 262931
SustainValue
Sustainable value creation in manufacturing networks
Towards sustainability governance in value networks
Due date of deliverable: 2013-12-31
Actual submission date: 2013-12-20
Start date of project: 2011-04-01 Duration: 36 months
Organisation name of the lead partner for this deliverable: VTT
Revision 1.0
Project co-funded by the European Commission within the Seventh Framework Programme
Dissemination Level
PU Public x
PP Restricted to other programme participants (including the Commission Services)
RE Restricted to a group specified by the consortium (including the Commission
Services)
CO Confidential, only for members of the consortium (including the Commission
Services)
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Contents Foreword ................................................................................................................................................. 5
Workbook’s background: SustainValue project ...................................................................................... 6
Introduction: Setting the scene .............................................................................................................. 7
1 Creating sustainable value in networked manufacturing industry ................................................. 7
1.1 Why did we write this workbook? .......................................................................................... 7
1.2 What is it all about? ................................................................................................................ 8
1.3 How this book supports sustainable value creation in networks of manufacturing industry?
11
Part I: Analysing sustainability governance within a value network .................................................... 15
2 Defining key actors ........................................................................................................................ 15
3 Analysing relationships ................................................................................................................. 19
4 Defining joint strategic objectives ................................................................................................ 21
Overview of Part I and discussion ......................................................................................................... 24
Part II: Organising sustainability governance within a value network .................................................. 26
5 Determining roles, benefits and responsibilities .......................................................................... 27
6 Negotiating network structure and tasks ..................................................................................... 28
7 Coordinating tactic and operational actions ................................................................................. 31
Overview of Part II and discussion ........................................................................................................ 34
Part III: Developing sustainability governance within a value network ................................................ 35
8 Talking about joint actions as a value network............................................................................. 36
9 Strengthening trust through joint actions .................................................................................... 38
10 Thinking sustainability on network level .................................................................................. 39
Overview of Part III and discussion ....................................................................................................... 40
Conclusions: Sustainability in value networks ...................................................................................... 42
Terminology .......................................................................................................................................... 44
References ............................................................................................................................................ 46
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Document summary information
Authors and contributors
Initial Name Organisation Role
KV Katri Valkokari VTT Author
KP Katariina Palomäki VTT Author
JB Jakob Beer UiS Contributor
MHG Maria Holgado Granados POLIMI Contributor
CG Christian Grefrath FIR Contributor
PR Padmakshi Rana UC Contributor
CS Christian Schäperkötter CLAAS Contributor
DW Dirk Wagner FIR Contributor
Quality control
Role Who Date
Deliverable leader Markku Reunanen 2013-12-20
Project coordinator Teuvo Uusitalo 2013-12-20
Disclaimer
The content of the publication herein is the sole responsibility of the publishers and it does not
necessarily represent the views expressed by the European Commission or its services.
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Foreword
The overall goal of the SustainValue project is to develop industrial models, solutions and
performance standards for new sustainable and better performing production and service networks.
This workbook is the update for the deliverable 1.2 in Task 1.2. The goal of the task is to develop a
sustainability governance model for manufacturing networks. In present networked manufacturing
industry, however, the importance of intangible assets is growing continuously due to servitisation.
Therefore, the original title of the deliverable D1.2 has been changed in this workbook and thereby
the term “value networks” is used instead of the term “manufacturing networks”.
The final form of the D1.2 will be workbook-oriented, and this deliverable serves as the draft for the
workbook that will be finalised in the early spring 2014. The deliverable focuses on network-level co-
development methods and tools, while development strategies and transformation processes at
firm-level will be considered in D1.3. The D1.2 update targets to summarize the appropriate tools
and methods from other WPs of the SustainValue project, and emphasizes the network approach
within them. In other words, the updated 1.2 does not present new tools but gathers up the
network governance-related tools and supporting information for their utilisation at value network-
level. The theoretical backgrounds and the development processes of the presented tools and
methods have been described in more detail in the project’s deliverables and other publications (see
the reference list).
This deliverable proceeds as follows: In the introduction the concept of governance and the
SustainValue value network governance model are presented. Part I Analysing deals with analyses of
value network and broader business ecosystem around the network. Through these analyses
network actors are able to identify total sustainability impacts over the product life cycle and
requirements of all involved actors as well as create joint strategic sustainability objectives. Part II
Organising offers tools and methods for understanding and discussing the collaboration models,
network structure, roles and responsibilities both inside the value network and with other
stakeholders within business ecosystem. Part III Developing focuses on sustainable development as a
value network thus considering the value network as an entity, and discusses evaluating the
progress and future development needs. The practical challenges presented in the beginning of the
main parts and the key questions in Table 1 guide the reader to choose the suitable tool in the
particular situation.
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Workbook’s background: SustainValue project
This workbook and the tools presented are based on the work carried out in the ‘Sustainable value
creation in manufacturing networks’ (SustainValue) project. SustainValue is a collaborative EU
project co-ordinated by VTT Technical Research Centre of Finland. The project’s duration is three
years, and the work started in April 2011. The consortium consists of 11 partners, including research
organisations Politecnico di Milano, Cambridge University, the Center for Industrial Asset
Management at the University of Stavanger, and the Research Institute for Operations Management
at RWTH Aachen University; industrial partners FIDIA, Riversimple, CLAAS, and Elcon Solutions Oy;
and the German Institute for Standardisation (DIN).
According to the project’s vision:
“New forms of business models and value networks together enable knowledge-based
transformation of the manufacturing industry and improve all three dimensions of
sustainable value (economic, environmental and social)”.
The project rose to the challenge by aiming to develop industrial models, solutions, and
performance standards for new sustainable and better performing value networks. The research
contributes to extended product utilisation by creating new business models and value-added
services. The research focuses on 1) designing governance models and business architecture for
sustainable manufacturing networks, on 2) delivering a set of tools and methods for sustainable and
value-added business modelling and network analysis and providing a methodology for developing
sustainable solutions, on 3) developing a governing framework for sustainability-performance
standards across integrated value networks and verification processes, and on 4) testing and
validating the tools and methods in real-world use cases.
The research leading to the results presented in this workbook has received funding from the
European Community’s Seventh Framework Program (FP7/2007–2013) under grant agreement
n°262931. The authors wish to acknowledge the Commission for their support.
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Introduction: Setting the scene
1 Creating sustainable value in networked manufacturing industry
1.1 Why did we write this workbook?
Global distribution of work within manufacturing industry and growing importance of service
business alongside with other structural changes in networks have challenged the traditional
business models in Western countries emphasising value co-creation between network actors. Also
the growing complexity and shorter life cycles of products drive companies to collaborate in new
ways. Now the success of a firm depends on its strategic collaboration with other organisations that
have an influence on the creation and delivery of its services or products. Thus, the companies
cannot solve the complex sustainability challenges (Figure 1) alone. The concept of value networks
represents the paradigm shift towards the co-creation of multiple sustainable values between
network actors.
In the integrated and networked production setting much of the opportunity to address
sustainability rests on the enhanced network management. The focal companies of value networks
are now asked to consider also the sustainability performance in their entire supply chain to cope
with new requirements and interests growing from customers and other stakeholders. Advantages
of network coordination are considerable, and alongside with the opportunity to address
sustainability, they include also enhanced learning, more efficient use of resources, increased
capacity to plan for and address complex problems, greater competitiveness, and better services for
clients and customers (Provan & Kenis 2007).
Sustainable development is development that meets the needs of the present without
compromising the ability of future generations to meet their own needs (ISO 2010). Sustainability
combines social, environmental and economic viewpoints.
This workbook considers sustainable value co-creation in manufacturing industry. Sustainable value
networks and sustainable manufacturing are important cornerstones of the sustainable
development.
Sustainable value network is an organisational form which targets to gain future competitive edge
to all participants through interaction and collaboration, and thereby is able to balance the three key
aspects of sustainability (environmental, economic and social aspects).
Sustainable manufacturing can be defined as the ability to smartly use natural resources for
manufacturing by creating products and solutions via a network of suppliers, customers, partners
and collaborators that due to new technologies, regulatory measures and coherent social behaviour
are able to satisfy sustainability - economical, environmental and social objectives. Thus preserving
the environment, while continuing to improve the quality of human life and remaining financially
viable for the long term by returning adequate profits and growth (developed from Garetti & Taisch
2011).
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Figure 1. Key challenges that sustainable manufacturing must respond to.
Sustainability issues are recognised as strategically essential in business: According to Lacy et al.
(2010), 93 % of CEOs see sustainability as important to their company’s future success.
Strengthening brand, reputation and trust is the strongest driver and motivator for CEOs for taking
action on sustainability issues, with revenue growth and cost reduction, CEO’s personal motivation,
and consumer and customer demand following. Sustainable business practices and products are
now opening up new markets and sources of demand, driving new business models and sources of
innovation, changing industry cost structures, and, little by little, permeating to all elements of
operations. In this change, partnerships and collaboration have been acknowledged as a critical
element of companies’ approach to sustainability. (Lacy et al. 2010.)
This workbook presents a sustainable value network governance process and suggests relevant tools
to support businesses that want to be more sustainable and that want their network members to
develop alongside with them.
1.2 What is it all about?
Governance model addresses the rules, processes, metrics and organisational structures needed for
effective planning, decision making, steering and control. Governance can be discussed on
corporate-level and on network-level, from the point of view of internal or external governance.
Corporate governance involves a set of relationships between a company’s management, its board,
its shareholders and other stakeholders (OECD 2004). It provides the structure through which the
objectives of the company are set, and the means of attaining those objectives and monitoring
performance are determined. Originally, corporate governance has been built around the concept of
accountability but later on the key principles of good corporate governance have come to cover also
transparency, responsibility, and fairness. (Shkolnikov & Wilson 2008.)
The main differences between the company and network governance models are related to legal
aspects, decision making processes and control mechanisms. Networks consist of independent
actors, who have their own targets and decision making models, and that typically have limited
formal accountability to network-level goals. Thus, conformity to rules and procedures is not
•by producing effectively and efficiently and creating new services ensuring development and competitiveness through time
Economic challenges
•by promoting minimal use of natural resources (in particular non-renewable energy) and managing them in the best possible way while reducing environmental impact
Environmental challenges
•by promoting social development and improved quality of life through renewed quality of wealth and jobs
Societal challenges
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governed by binding regulations but is more voluntary and requires interaction between the parties
in order to build shared understanding and action agenda. Therefore, for intentional networks with a
distinct identity, governance is needed to ensure that participants engage in collective and mutually
supportive action, that conflict is addressed, and that network resources are acquired and utilised
efficiently and effectively.
Though corporate governance already extends into many areas of creating sustainable business,
broadening of stakeholder involvement in the decision making, and regulatory enforcement
mechanisms are needed (Shkolnikov & Wilson 2008; Bosselmann et al. 2008). Moreover, since
manufacturing activities are presently organised through networked processes within value
networks, new models for network governance are needed in order to ensure sustainable
development and performance also on the network level. These governance models should enable
clear identification of network actors and stakeholders who are influencing and can be influenced by
the sustainability of the product or service during its life cycle. In network governance, governance
structures are what bring actors to work together — the process, rules and norms by which the
network enables individuals to influence to network’s operations and decision making. Governance
involves the use of institutions and structures of authority and collaboration to allocate resources
and to coordinate and control joint actions across the value network as a whole (Provan & Kenis
2007).
As described above, network governance deals with many important questions (Figure 2): How is the
governance structure organised – is governance shared or does it have a leading organisation
(typically focal company) or perhaps a “third party” that works as an administrative organisation?
What are the governance mechanisms – is it governed by contracts or relational norms or how are
these combined? To which levels network governance, collaboration and decision making extends –
strategic, tactic, or operative issues?
Figure 2. Elements of network governance.
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The SustainValue governance model illustrates the sustainability governance within a value network
as a process that guides the activities of all involved actors towards sustainable development and
performance over product life cycle. The SustainValue governance model process integrates i)
requirements and commitment of stakeholders within a business ecosystem as well as ii) business
models and self-interest of value network companies.
The SustainValue governance model that presents the governance model of a value network (Figure
3Error! Reference source not found.) includes three main tasks – analysing, organising and
developing – that are in accordance with company level approaches but highlight the need for
multilevel network governance. The tasks also form the outline of this workbook.
Figure 3. SustainValue governance model.
Analysing (Part I):
In order to guide the activities of all involved actors towards the sustainability objectives, companies
must first define the key players inside the value network and the boundaries between the network
and business ecosystem. This network analysis requires picturing the connections (e.g. business
relationships, informal collaboration, ownerships etc.) between the actors. In order to the network
members to understand the network’s value for each member, their objectives, self-interests and
expectations should be covered. Concurrently, it is important to define the requirements and
expectations of the important stakeholders within the business ecosystem. Based on these initial
analyses companies are able to identify total sustainability impacts over the product life cycle and
requirements of all involved actors.
Organising (Part II):
The analysis of the involved actors and the understanding of their requirements direct the organising
and managing of sustainable development at the network level. Shared targets and collaboration
models are formed both inside the manufacturing network and towards other stakeholders within
the business ecosystem. In this phase an important aspect of the sustainability governance in value
networks is the connection between sustainable development and business models. Thus, aligning
An
alys
ing - Defining and
describing the key players of the value network and business ecosystem
- Identifying impacts over the product life cycle and the requirements of stakeholders within business ecosystem
Org
anis
ing - Forming shared
targets and collaboration models both inside the value network and with the stakeholders within business ecosystem
- Aligning business models and integrating processes according to sustainability objectives
Dev
elo
pin
g - Evaluating progress and setting new targets through shared action agenda
- Renewing actions, operations and business models towards sustainable value network
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business models and integrating processes according to the sustainability objectives should be
carefully considered.
Developing (Part III):
In order to ensure continuous improvement as well as renewal, the progress should be evaluated
through shared action agenda and new targets should be set transparently based on the
achievements. In this phase actors should renew actions, operations and business models together
to become truly a sustainable value network in the manufacturing industry. Whereas the first two
phases of the governance model concentrate on building up and developing the sustainable value
network so that it really fits and works together, this third phase focuses on the network as an entity
and thus also discusses its relationship with external stakeholders and environment and the whole
ecosystem. The future structure and performance of network is co-produced by involved actors and
thereby governing the network level activities is more or less self-sustaining and evolving.
Table 1 sums up the key issues of the value network governance process.
Table 1. Governance model, its phases, key questions and results.
Analysing Organising Developing
Key questions in each phase
With whom to collaborate, co-operate to co-create new ”shared value” from sustainability?
How are we able to control or influence the choices of all parties regarding to sustainability?
How to collaborate with our network members? What is the appropriate co-operation model according to our sustainability targets? How to define and agree on the decision making mechanism within the network?
How to set new targets and evaluate the progress through shared action agenda? How to constantly renew our network settings and collaboration models?
How to identify the impacts over product life cycle and broader to the business ecosystem?
Key results Understanding of the key players, relationship types with them, their roles and the value for each actor.
Understanding of the structure of the network, different roles within it, and of the possibilities to affect each other and sustainability objectives. Alignment of different business models and building base for new, sustainable business opportunities.
Understanding of the network as a collaborative entity, of the integration of formal and informal governance, and of the vision of future development needs.
1.3 How this book supports sustainable value creation in networks of
manufacturing industry?
This workbook has been developed first of all for managers that are involved in companies’
sustainability and corporate responsibility management and for consultants and auditors that work
in the field. The reader could be a representative of the focal company in a network, and thus have a
special view to the business and also the interest to develop the network. This workbook does not
aim to describe the steps for building up a new network “from scratch” but presents important
perspectives and tools for developing an already established network towards a sustainable value
network. The workbook is developed especially to the needs of business-to-business networks in the
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(European) manufacturing industry. Its focus is on strategic and tactic governance, and thus
operational issues (e.g. reporting, measuring) are not covered.
The workbook takes the perspective of a focal company, and focuses on value networks and their
governance thus emphasising value network members and interaction between them but excluding
internal stakeholders (owners, employees etc.) and detailed discussion on external stakeholders in
the broader business ecosystem. Thus the workbook distinguishes those network members that
have a business relationships with each another (suppliers, customers, service providers etc.) from
those other external stakeholders with which the relationship is not based on direct business
relations.
With this focus and definition as the foundation, the following figure (Figure 4) presents the network
governance model on a more detailed level. In each main stage of the network governance process,
the work starts with making decisions on the governance structure, then proceeding to issues
related to governance mechanism, and finally to discussing collaboration of the network:
- In the analysing phase, the aim is to create joint strategic sustainability objectives within the
value network based on analyses and understanding of interests of all involved actors (both
the network and stakeholders).
- In the organising phase, the network actors agree on organising (like network structures,
roles, responsibilities) within the network in order to be able to coordinate the actions.
- In the developing phase, the network actors are continuously working together to gain the
joint objectives, and also evaluating the progress and required changes.
Figure 4. Value network governance: Elements and process.
Figure 4 outlines also the structure of this workbook. Each element is further discussed in the
chapters that present the important issues and steps and tools that help in the strategic governance
of the network. The following table presents and shortly describes the workbook’s tools and check
lists.
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Table 2. Table presenting the workbook’s tools and check lists.
Chapter Tools and check lists Description
Par
t I:
2. Defining key actors Network picturing tool A tool for recognising key players broader in
the business ecosystem and more specially
the value network members participating to
the life cycle of products or services
Value mapping tool A tool for identifying potential stakeholders
and for defining the sustainability priorities
3. Analysing
relationships
Relationship analysis Analysing the relationships (type of the
relationships, sustainability-related objectives)
with value network actors and other
stakeholder groups
Supplier evaluation matrix A tool for searching and evaluating possible
suppliers
4. Defining joint
strategic objectives
Maturity assessment for
network conditions
Elements and a set of questions for assessing
the relationships between actors and the
network effectiveness
Sustainability matrix A tool for evaluating and coordinating
interests and sustainability objectives of
stakeholders, e.g. in supplier selection
Par
t II
:
5. Determining roles,
benefits and
responsibilities
Actor – contribution –
benefit check list
A check list for discussing roles, contribution
and benefits of each stakeholder group
6. Negotiating
network structure
and tasks
Collaboration models,
network management tasks
check list
Models and a check list for making decisions
on the structure of the network and on how
activities are organised
7. Coordinating tactic
and operational
actions
Steps for aligning business
models
Steps that guide the aligning of the business
models of network actors
Sustainable business model
element archetypes
An approach for selecting business model/s
that deliver business model innovation for
sustainability
Par
t II
I:
8. Talking about joint
actions as a value
network
Shared action agenda for the
future development of value
network
Important steps for the development of the
value network as an entity
Strategic roadmapping tool Identification of obstacles, solutions and steps
for future development, and the shared
targets and vision
9. Strengthening trust
through joint actions
Relationship – interaction
matrix
For describing the evolvement of relationships
10. Thinking
sustainability on
network level
Corporate sustainability
continuum
Supports in framing of the present situation
regarding to sustainable development, and in
studying the future paths
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This workbook presents examples on how the selected tools could support sustainability governance
within a value network. It needs to be pointed out, however, that the tools can be adapted to
different purposes and may be utilised in more than just one phase.
Each part of workbook works independently, and thus the tools and methods of the workbook do
not need to be used one after the other. The practical challenges presented in the beginning of the
main parts and the key questions in Table 1 guide the reader to choose the suitable tool in the
particular situation.
Introduction’s background in the SustainValue project:
Palomäki, K., Reunanen, M., Valkokari, K. & Valkokari, P. 2011. Sustainability gaps and stakeholder
requirements. D1.1, SustainValue project.
Valkokari, K., Valkokari, P., Reunanen, M., Palomäki, K. & Amirmostofian, A. 2012. Towards
sustainability governance in manufacturing networks. D1.2, SustainValue project.
Holgado Granados, M. & Macchi, M. 2012. A reference business model architecture for sustainable
manufacturing products, services and processes. D1.3, SustainValue project.
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Part I: Analysing sustainability governance within a value network
Figure 5. The focus of Part I: Analysing.
Part I describes the analysing phase of the sustainability governance process. In this phase, it is
important that the organisation defines the key players and their roles inside the value network but
also in the broader business ecosystem. The phase proceeds from defining the key actors to
analysing the relationships with the identified actors, and to describing, aligning and developing new
strategic sustainability objectives with the actors. For this e.g. network picturing or value mapping
are exercises to start with. Forming shared targets as such takes place in the following phase but
partly these two phases overlap, and the work should already be started at this phase. Based on
these initial, company-centric analyses companies are able to proceed to the next phases of the
governance model, organising and developing within the value network.
Practical challenges:
Recognising the value network actors and the key stakeholders in the business ecosystem
Understanding formal and informal relationships and their strength and value from the viewpoint
of sustainability
Describing and aligning strategic objectives
Communicating within the value network and with stakeholders in order to create shared
understanding and true engagement
Tasks of the phase:
• Defining key actors (both value network and stakeholders)
• Analysing relationships
• Defining joint strategic objectives
2 Defining key actors
In a traditional value network within the manufacturing industry, suppliers, lead producers (typically
focal company) and customers can be defined as the most typical roles. Still, the roles and operation
models are changing towards more collaborative processes and thereby different partnerships as
well as roles of service providers and integrators are emerging within value networks. In addition to
value network members, company’s business ecosystem includes various stakeholder groups that
An
alys
ing - Defining and
describing the key players of the value network and business ecosystem
- Identifying impacts over the product life cycle and requirements of stakeholders within business ecosystem
Org
anis
ing - Forming shared
targets and collaboration models both inside the value network and with the stakeholders within business ecosystem
- Aligning business models and integrating processes according to sustainability objectives
Dev
elo
pin
g - Evaluating progress and setting new targets through shared action agenda
- Renewing actions, operations and business models towards sustainable value network
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influence and are affected by the company’s actions (see Figure 6), and also the interests of these
external stakeholders should be considered.
The aim of this phase is to define the key actors in the organisation’s value network and
stakeholders in its business ecosystem (Figure 6), and their roles in order to recognise with whom to
collaborate to create shared value.
Figure 6. Company’s business ecosystem and value network (Koivisto et al. 2004).
Network picturing tool helps in recognising the key players broader in the industrial sector and
more specially the value network members participating to the life cycle of products or services.
Furthermore, the relationships and also informal linkages between the actors can be described. In
order to recognise other important actors than the present business partners (value network
members), the vertical and horizontal dimensions of networks should be distinguished (Figure 7).
This helps also define the network position of the focal company.
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Figure 7. Network picturing tool (modified from Valkokari et al. 2004).
A network picture is a starting point to represent network actors, links and their resources, like
competences and intellectual property (IP). It is important to figure out company’s negotiation
position related to possible collaborators – suppliers, partners, customers as well as stakeholders.
Network picturing works as a ‘sense-making’ device, and consequently to shape managerial
decisions, actions, and evaluations regarding the networks dimensions and the network position of
the focal company.
Network picturing supports shared sense-making process when it is done together at company or
even network level. In such a workshop the participants are able to create shared understanding
about their relationships with other network members and also to recognise if there are links
missing between them and the key players of their business environment.
Define the unit of analysis (i.e., the business unit, company, or network). The focus is on
the key players (network actors) participating to the life cycle of products or services.
Identify the network actors and place them in the vertical and/or horizontal network
dimensions.
Recognise the role of network actors (such as subcontractor, supplier, partner, service
provider, etc.) and consider your relationship to them, include also informal relationships
between the actors (see also Chapter 3, Analysing relationships).
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Value mapping tool helps in identifying potential stakeholders in the business ecosystem and within
the value network and defining the sustainability priorities that will assist in exploring the new
sustainable value proposition. A clear understanding of the purpose of the organisation and of the
sustainability and target positions for the future helps in determining the sustainability priorities.
Value mapping tool supports in this.
Figure 8. Value mapping tool (Short et al. 2012, Bocken et al. 2013).
The value mapping tool supports exploring, mapping and analysing the relationships and exchanges
between the stakeholders through mapping the current value, value destroyed and missed and
value opportunities. This is carried out to develop opportunities for new sustainable value
propositions from a system perspective without being firm-centric. Here, every value can be
illustrated for every stakeholder to get an easy overview of changes for each stakeholder. In case co-
operation partners for the new service are needed, they can be identified by this value mapping tool
as well.
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Step 1 – Setting the scene
Decide the unit of analysis (product/service, business unit, company or an industry)
Add or modify any missing stakeholders (can be done based on the results of network picturing)
Identify the business purpose of the unit of analysis (yellow star) Step 2 – Map the value (follow the spiral, clockwise)
Current value captured for each stakeholder
Value missed and destroyed for each stakeholder (use different colour post-its to distinguish values)
Step 3 – Generating solutions
Eliminate value destroyed - where is the conflict between stakeholders? How might it be resolved?
Look for ways to utilise value missed
Explore new value opportunities – extending the value proposition, shifting to higher value added
Use of the tool and the design of workshops should be adapted to the size and complexity of the
business. For more complex businesses it may be desirable to focus on specific business units or
product lines to ensure the process is manageable. To maximise the potential of the tool,
representatives or suitable proxies for each major stakeholder group should participate in the
process to solicit broad perspectives on value.
This tool provides a structured approach for entrepreneurs and business managers to gain a more
complete understanding of the value proposition of the company, and to explore opportunities for
transforming the value proposition towards more sustainable solutions.
3 Analysing relationships
After the key actors in the network have been identified, the identified actors, connections with
them and their sustainability-related objectives should be analysed (Relationship analysis,
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Table 3). The first step in this phase is to recognise and distinguish those actors with which the
organisation has a business relationship that can be controlled e.g. with business contracts, and
actors with which influencing takes place for example through shared projects, involvement in
programmes, and external communication. Thus, also the business relationships have various forms,
for instance some of the suppliers can be considered as partners where as others are classified as
sub-contractors – similarly also the relationships towards customers have different forms.
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Table 3. Analysing the relationships with different value network actors and stakeholder groups.
Actors Connections Objectives related to sustainability
Focal company Business relationship with
direct suppliers and
customers
Fulfilling orders, ensuring economic
performance
Defining and monitoring environmental and
social performance criteria
Customers Business relationship Collaboration and strategic partnerships
Life cycle services
Direct suppliers
(=supply chain
members)
Business relationship
(including both
partnerships and arms-
length relationships)
Cooperation and integration for sustainable
performance
Fulfilling environmental and social criteria
Other stakeholder
groups
(government,
customers, NGOs, etc.)
Exert pressure and offer
incentives for focal
company as well as other
supply chain members
Fulfilling additional (normative/ethical)
stakeholder requirements of
environmentally and socially extended
value network performance
Relationship analyses can be done internally within the focal company, though discussion with
network members is very useful as it may help to clarify their interests, objectives and expectations.
It is important to have a broader insight to networked business environment and figure out also the
actors who are not directly involved to company’s value creation process. For instance, exploring
the business environment of customer as well as defining customers of customers might offer new
insights to the sustainability as well as to the offering of the network.
Because of their network position focal companies have more power over their suppliers than over
their customers. Therefore sourcing companies typically have different tools for evaluating their
suppliers and guiding their development work, also including sustainability issues. Supplier
evaluation matrix is a tool for searching and evaluating possible suppliers (to operate as value
network members). When making the decision between the possible suppliers, it is important to
compare their characteristics such as their resources, competences, and commitment related to co-
operation. Table 4 shows an example of a supplier (network member) evaluation matrix. The criteria
according to which a decision is made in the end are case-specific, and should be aligned with the
strategic objectives of the sourcing company.
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Table 4. Supplier evaluation matrix.
In addition to evaluating suppliers, also the identification and categorisation of external stakeholders
is a practice that should be considered in this phase. Stakeholders may be categorised e.g. according
to three main attributes - power, legitimacy and urgency - they hold relative to the relationship with
the focal company and other network members. The salience of a particular stakeholder to a
company is low if only one these three attributes is present, moderate if two attributes are present,
and high if all three attributes are present. Thus the company should, at least, identify those
stakeholders that are most important for it and that hold the combination of all of the three
attributes, the so called definitive stakeholders. (See Mitchell et al. 1997.)
4 Defining joint strategic objectives
After the focal company has identified its network’s key actors, other stakeholders and their roles as
well as analysed its relationship with each stakeholder group, analysing phase proceeds to the
organising phase. In this phase, network actors describe and align their strategic objectives together.
This is an important step for an actor itself and for the sustainable development within the network.
Communicating with stakeholders and within the value network is crucial in order to create true
engagement to the joint strategic objectives. The following figure (Figure 9) describes how the
different level objectives influence and guide each other.
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Figure 9. The interdependency of strategy and objectives on the value network and network actor level.
Maturity assessment for network conditions can be utilised to create shared understanding about
network’s present sustainability level and development needs. It proposes three elements –
objective alignment, capability matching and partnership health – that can be used for assessing the
relationships between actors in a network, and that together characterise network effectiveness.
The maturity assessment model considers also contracts, a formal governance mechanism, as an
instrument through which actors’ commitment towards sustainability can be assessed and practices
can be agreed. Moreover, this model and the related questions bring out many other concrete issues
that network actors need to discuss and decide on.
Objective alignment describes the match between an organisation’s objectives and the objectives of
potential network members, and thus it focuses on how well organizations are able to align their
organisational objectives with their value-adding collaborators to find common ground for progress
in sustainable business development. Capability matching describes the ability to deploy resources,
skills, competences/abilities and experiences of organisations for collaborative purpose. Partnership
health indicates the condition or status (e.g. the level of collaboration) of the mutually beneficial
relationship between two or more members within a network.
Figure 10. Network condition elements.
Objective alignment
Sustainability objectives of contract partners
Criteria for sourcing and service contract decisions
Contract design & objective alignment
Life cycle thinking in contract design
Capability matching
Assessment of contract partners’ capabilities
Technological capability
Resource availability and accessibility
Knowledge base
Collaboration capability
Partnership health
Knowledge, information and data sharing
Network level processes and division of work
Cost and benefit sharing
Decentralized – centralized decision making
Relationship development
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These elements and their sub-elements can be utilised in analysing the current state in a network as
well as in setting targets towards sustainable development at the network level, thus providing also
a roadmap for actions. Relating to each of the elements, the following list of questions supports this
assessment:
Questions regarding objective alignment:
To what extent are sustainability objectives defined and utilised by the company’s network
members?
Are there any measures in place to align sustainability objectives of network members with
the company’s sustainability objectives?
Do sustainability objectives of network members take into consideration a variety of
stakeholders besides shareholders?
What are the criteria – besides economic efficiency – that sourcing and service decisions
are based upon?
Do contracts with network members take into account possibly diverging or conflicting
objectives with the company?
How are contracts designed to allow for objective alignment with network members?
To what extent are life cycle considerations made in contracts design/terms with network
members?
Questions regarding capability matching:
Are measures in place to assess the capabilities of the network members across the
network?
Do the firm and its network evaluate environmental and social impact when deciding to
invest on technologies and/or equipment for the manufacturing process?
How are technologies and equipment used in the value network, managed and evaluated
regarding their environmental and social impacts?
Are there initiatives/processes to configure and coordinate resource availability/
accessibility?
To what extent are the initiatives regarding training and know-how defined, managed and
improved to develop the knowledge base across the value network?
Which are the initiatives/methods for collaboration across the value network and to what
extent are they implemented and improved?
Questions regarding partnership health:
How is the knowledge, information and data sharing organized between the network
members?
To what extent the network level process and the division of work (e.g. roles and
responsibilities) are defined and agreed between the network members?
To what extent cost and benefit sharing is agreed (or transparent) between the network
members?
How is decision making criteria agreed between the network members?
How do the network members agree on relationship and its development needs?
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Sustainability matrix is another tool for evaluating and coordinating interests and sustainability
objectives of stakeholders, and can be used e.g. in supplier selection, customer communication as
well as considering collaboration initiatives within business ecosystem. The interests of various
stakeholders to strategic sustainability key issues are evaluated and presented with a colour scale in
the matrix (key actors – key issues). This is an exercise that which the assessing company can carry
out on its own.
Figure 11. Sustainability matrix (modified from Timlon 2011; Carroll 1991).
Overview of Part I and discussion
After this governance process phase the networking company has recognised they key players in its
networked business environment, relationship types with them, their roles (network members and
stakeholders) and the value for each actor. In other words, the company has a better understanding
with whom and how it can collaborate in order to develop sustainable value.
Using the tools presented in Part I in collaborative development work within a value network is at
the same time communicating with the network actors and stakeholders, sometimes even involving
the building up of totally new connections. Many of the tools can be, or even should be, used in a
workshop kind of setting where the focal company jointly with its stakeholders and/or value
network representatives discusses relevant issues for their development towards sustainability.
In the governance of sustainable value networks, transparency, interaction with stakeholders, and
bidirectionality of feedback loops are some of the important principles to see about. As in network
co-operation generally, good network governance provides continuous interaction, co-operation and
joint development as well as openness and network members’ willingness to work together. In this
first phase of the network governance process, network actors have a unique possibility to launch
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new more open and interactive practices that may, at best, become everyday routines in the
network.
The background of Part I in the SustainValue project:
Palomäki, K., Reunanen, M., Valkokari, K. & Valkokari, P. 2011. Sustainability gaps and stakeholder
requirements. D1.1, SustainValue project.
Valkokari, K., Valkokari, P., Reunanen, M., Palomäki, K. & Amirmostofian, A. 2012. Towards
sustainability governance in manufacturing networks. D1.2, SustainValue project.
Rana, P., Short, S. & Evans, S. 2013. Lessons learned report, documenting the impact from use of the
tools & methods and areas for improvement. D2.5, SustainValue project.
Valkokari, P., Valkokari, K., Reunanen, M., Grefrath, C. & Wagner, D. 2012. Analysis of the existing
methodologies supporting innovation and solution engineering. D3.2, SustainValue project.
Grefrath, C., Wagner, D., Ruder, P.M., Rotaru, R., Frey, D., Brenken, B., Reunanen, M., Valkokari, P.,
Valkokari, K., Macchi, M., Holgado Granados, M., Fumagalli, L., Evans, S., Rana, P. & Short, S. 2013.
Development methodology for sustainable solutions. D3.3, SustainValue project.
Liyanage, J., Beer, J., Valkokari, K., Macchi, M., Rana, P., Short, S. & Evans, S. 2012. Multi-objective
sustainability-performance framework. D4.1, SustainValue project.
Holgado Granados, M. & Macchi, M. 2013. Sustainability metrics and sustainability-performance
KPIs. D4.2, SustainValue project.
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Part II: Organising sustainability governance within a value network
Figure 12. The focus of Part II: Organising.
Part II describes the organising phase of the network-level sustainability governance process, and
broadens the focus from inside of companies and internally performed analyses to the network level
and collaborative decision-making on how to organise cooperation in practice and how to affect
each other. It focuses on negotiating and agreeing on the network structure and the roles of
network members in a setting where business models of network actors can be seen as tools for
describing and negotiating business interests, sustainability objectives and network responsibilities
and benefits.
Agreeing guidelines for network operations together makes also the coordination of tactical and
operational actions more transparent and fluent. If the network members are not committed to
work together and not willing to negotiate collaboration principles for sustainability, they are not
able to go through this phase.
Practical challenges:
Understanding and discussing the expected contribution of each actor and the benefit and risk
sharing within the network and the broader business ecosystem
Understanding the various network structures as well as both formal and informal governance
mechanisms and ways and possibilities to affect other actors
Coordination and knowledge sharing with the network actors and stakeholders
Business transformation and business model redesign according to the new sustainable value
proposition/s
Long term vision for sustainability
Tasks of the phase:
• Determining roles, benefits and responsibilities
• Negotiating network structure and tasks
• Coordinating tactic and operational actions
An
alys
ing - Defining and
describing the key players of the value network and business ecosystem
- Identifying impacts over the product life cycle and requirements of stakeholders within business ecosystem
Org
anis
ing - Forming shared
targets and collaboration models both inside the value network and with the stakeholders within business ecosystem
- Aligning business models and integrating processes according to sustainability objectives
Dev
elo
pin
g - Evaluating progress and setting new targets through shared action agenda
- Renewing actions, operations and business models towards sustainable value network
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5 Determining roles, benefits and responsibilities
The internally, at a company-level performed analysis of network roles supports the preparation for
negotiations and contracting process at network level. Through negotiations the network actors
must clarify their roles and responsibilities and consider conflicts of interest. In order to support the
forming of successful collaboration between network members, companies must have clearly
defined but different roles.
In addition to negotiating for the roles and responsibilities, also the issue of wealth dissemination,
benefits and risks needs to be discussed in this phase. Dissemination of organisational wealth should
be fair and reflect the contribution of each stakeholder to the network’s wealth creation. This relates
to both financial and intellectual contributions of stakeholders and network actors. The distributed
benefits do not always have to appear in the form of direct financial benefits but can also be in the
form of lower prices, innovative solutions, increased accountability and transparency, and education
and knowledge, for example. (Sachs & Maurer 2009.) The following table presents network
members and stakeholder groups, their contribution to collaboration, and examples of benefits –
the Actor – contribution – benefit check list.
Table 5. Network actors’ and stakeholders’ roles, contribution and benefits (modified from Paasi et al. 2013,
Seuring 2011, Sachs & Maurer 2009, Boutilier 2009).
Contribution Benefit
End customer/
user
Knowledge about sustainability
requirements (both present and
future)
More sustainable solutions that
are based on customer needs
Supplier commitment
Sustained business partnerships
Focal company
(product/
service
company)
Fulfilling orders, ensuring sustainable value network performance
Defining and monitoring
environmental and social
performance criteria
Knowledge about business solution
and customer needs
Considering the needs of employees
New approaches, solutions,
innovation, knowledge about end
user needs
Customer loyalty
New network connections
Reduced conflict with unions
Recruitment and retention of most
talented employees
Sustained business partnerships
Local community support
Enhancement of brand value
Geographical expansion of markets
Suppliers Cooperation and integration for supply chain performance
Fulfilling environmental and social
criteria
Contribution to network efficiency,
cooperation, resources and
performance
Procurement conditions,
compensation of supplier risk,
Transparency of value network and
knowledge contribution
Sustained business partnerships
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Product/ solution connected better
to offering, complementary
resources
Other external
stakeholder
groups (e.g.
government,
community,
NGOS)
Bearing risks due to pollution and
contamination
Information on emerging social risks
Fulfilling additional environmental
and social stakeholder
requirements
Corporate philanthropy, financial
and non-financial compensations
for risks borne,
Education and employability
Knowledge exchange, better
transparency of actions
Understanding and considering
other stakeholders’ expectations
It has been stated that for a company to be viable over time, it must demonstrate its ability both to
achieve the multiple objectives of the different parties and to distribute the value created in ways
that maintain their commitment. Risk and benefit sharing is one important factor in the success of a
network, in network actors’ commitment to the pursuit of the jointly set goals, and also an aspect of
network governance tasks. (Ayuso & Argandoña 2007.)
6 Negotiating network structure and tasks
Network actors should be able to form first a shared understanding about what to do, why to do it
and then to figure out who should do it. In order to answer the question how to do it, different
collaboration models can be reviewed. In this organising phase, decisions are made on the structure
of the network and on how the activities are organised.
Governance structures refer to the degree of centralized or distributed coordination (Svahn &
Westerlund 2007). According to their structure networks can be divided to hierarchical hub-spoke
and multiplex model (Doz 2001). Within the hub-spoke-model the focal company is responsible for
the network governance. In the multiplex model the network governance takes place within and
between the network actors. In another classification, three types of governance within networks
have been identified: i) shared governance, ii) lead organisation (typically focal company) governed,
and iii) network administrative organisation (NAO) governed. Under NAO governance, all activities
and decisions are coordinated through one organisation specifically created to oversee the network.
(Provan et al. 2007.) Successful adoption of a particular form of governance is based on four key
structural and relational contingencies: trust, size (number of participants), goal consensus, and the
nature of the task (specifically the need for network-level competencies) (Provan & Kenis 2007). In
this phase, the focal company with its network members may discuss whether the future
collaboration should adopt characteristics of another governance model e.g. by sharing the
governing role with more than just one actor (the focal company).
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It is important to understand what are the mechanisms with which the governing organisation is
able to influence and control key actors’ choices regarding sustainability in order to choose the
appropriate network management models (related to network structure and governance
mechanism). Network management typically balances between (Poppo & Zenger 2002):
- contractual governance mechanism: the use of a formalised, legally-binding agreement to
govern the inter-firm relationships
- relational governance mechanism: the role of norms of solidarity, flexibility and information
sharing in the relationship process.
Relating to contractual governance, contracts are often seen as a key issue for protecting against
risks. Contracts can, however, also work as tools for organising collaboration and introducing
flexibility into the network. As such they work as a part of relational governance mechanisms. A
contract document itself can be seen as an instrument for managing the network and formalising the
networking process. Thus, contracts can be seen as a way to communicate in a network.
The main tasks of value network management in manufacturing industry include (Svahn &
Westerlund 2007):
1) Integrating value activities: Combining value-creating activities, capabilities, expertise,
processes, technologies, products and components that network actors provide. This
requires common standards, rules, and synchronised information and material flows among
all actors in order to ensure efficiency of operations.
Figure 13. Collaboration models (according to Provan et al. 2007).
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2) Controlling and monitoring other actors and their activities: The degree of control varies by
the negotiation power and network position that are based on the network structure and
ownership of important resources from the perspective of the goal of the network.
3) Coordinating the value activities of various actors: Necessary for guiding and scheduling the
value activities of actors in the network towards common objectives.
4) Influencing the other actors and their underlying value-creating activities: The degree of
influence varies in different business situations, and, based on their network position, the
actors have different power to influence others. A hub company (i.e. the focal company)
often has more power to influence the entire network than an individual network member
has.
As illustrated in Table 6, which combines the different network roles and management tasks, there
are several ways to guide the co-evolution of value network and its stakeholders towards
sustainability. In all of these tasks network management requires both formal control governance
and informal guidance. However, integrating and controlling of activities are typically based on
formal contractual governance mechanism whereas coordinating and influencing are based on
relational governance mechanisms, e.g. social relationships and collaboration between the involved
actors.
Table 6. Network management tasks and possibilities from the viewpoint of focal company.
Elements of network management
Network role Integrate Control Coordinate Influence
Direct suppliers X (through contracts and
co-operation)
X X X
Direct customers X (through contracts and
co-operation)
X X
End customers X
Other external stakeholder groups
(NGOs, governments, local
communities)
X X
Based on their network position and network’s governance model network actors have different
possibilities to participate in network governance. Thus, in addition to contractual governance
mechanisms, politics, bargaining, negotiation, and compromise become critical control mechanisms
because organisations still remain relatively autonomous and must be convinced to work together
because they cannot be forced to do so (Phillips et al. 2000).
Collaboration will increase the possibilities to influence the decisions of other network actors
because through collaboration the governing organisation can influence also choices which they
cannot directly guide through formal contracts. Collaboration and interaction related to it builds so
called social capital, which supports relational governance within the network. Furthermore, the
need for collaboration depends on whether the network actors (or other stakeholders) have interest
in same issues or not. For example sustainability matrix (see Figure 11 in Chapter 4) can be utilised in
order to define whether the actors have same or different concerns on sustainability issues.
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Together with the social capital this issue affects the way how collaboration comes off and evolves
(Figure 14). (Boutilier 2009.)
Figure 14. Social capital (adapted from Boutilier 2009).
7 Coordinating tactic and operational actions
Since Describing and aligning strategic objectives in Part I discussed forming shared targets on a
strategic level (Figure 9), this phase looks into the operational-level target setting carried out as a
network. In this phase, the networked actors need to coordinate their actions, match their
capabilities, and share knowledge relating to this. The maturity assessment carried out in the
previous phase serves also for this task as it describes the path for actions to be taken in order to
improve the capability matching process.
Figure 15. Forming shared targets – three levels (modified from Kemp et al. 2007).
On the tactical level, business model works as a tool through which companies can negotiate and
communicate issues relating to their role in the network as well as their own self-interests and
expectations for collaboration. It provides a link between the strategy and operations/processes
(e.g. Hedman & Kalling 2003; Amit & Zott 2001). Though a business model is company-specific, its
meaning for the network lies in its aspect to represent and verbalise how a company works: how it
captures, creates and delivers value. A business model could be described with a help of business
model canvas, for example (Figure 16).
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Figure 16. Business model canvas (Osterwalder & Pigneur 2010).
The transition towards a sustainable business model requires a significant shift in the way businesses
are conceived and operated to create sustainable value. Business model redesign could assist in
embedding sustainability into the core purpose and processes of firms, whilst delivering sustainable
value (environmental, social and economic). This requires a comprehensive consideration of a
system-wide perspective to rethink the value proposition and to create, deliver and capture
sustainable value.
After understanding each network actors’ business purpose and business models and their
approaches to sustainability, the network can proceed to discussing how the actors and the
elements of their business models (see Figure 16) really fit together and how to redesign the
business models with a focus on the network. Steps for aligning business models assists companies
in aligning their business models on the network level. The output of this process is a
transformation/development of the network level sustainable value proposition.
Explore and develop opportunities for sustainable value proposition
Generating a sustainable value proposition/s towards designing a sustainable business model
with a focus on the value network. It is concerned with understanding and analysing the current
situation and other actors’ business models across the network to develop the joint sustainable
value proposition.
Concept generation and selection
Selecting one or a combination of feasible business models, concepts or solutions for the
transformation of the joint sustainable value proposition.
Designing the value delivery system and business models
Includes the identification and potential development of the value delivery system (key
activities, channels, resources, earning models) whilst analysing the cost incurred through the
life cycle to assist in evaluating the options.
• What are the activities, resources, suppliers/partners and channels?
• How is value created and delivered to the identified stakeholders?
• How is value captured from the view point of each value network member?
The alignment of business models requires system-wide rethinking of value proposition as well
as creating, delivering and capturing of sustainable value. Thus, it may necessitate several
negotiation rounds before all network members are able to agree on their role, responsibility
and tasks within collateral operations.
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Also sustainable business model element archetypes support in the transformation of the new
sustainable value proposition by providing a selection of groupings and mechanisms that help in
delivering business model innovation for sustainability. The proposed categorisation of archetypes is
a set of elements that constitute part of a business model design, and thus they can be used in the
first step of the ‘Steps for aligning business models’ presented above.
Archetypes can serve as options and possibilities for sustainable business models through providing
inspiration for practice on how to translate social and environmental value creation into economic
profit and competitive advantage for the company or a network to build the ‘business case for
sustainability’. Thus they can be characterised as optional strategies, and generally a business model
is developed using a combination of several of the various archetypes. As the following table shows,
sustainability can be practiced in various ways – there are many opportunities for businesses.
Figure 17. Sustainable business model archetypes (Short et al. 2012b, Bocken et al. 2013).
The proposed archetypes are intended to use in a workshop environment. The archetypes provide
assistance in two main ways:
Assisting in developing the value proposition by providing a structure for identifying
and exploring opportunities for transforming currently negative outcomes of the
business model, or exploring new ways to create positive sustainable value.
Designing and developing the business model structure by providing guidance in
mechanisms to realise a desired value proposition.
In addition to network-level discussions and developing, the typology has applicability in all
business modelling activities, from exploring opportunities for new start-ups, to assisting in
redesigning business models for established large corporations.
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Overview of Part II and discussion
After this phase, the network members understand the structure of the network, different roles
within it, and the possibilities to affect each other and sustainability objectives. Based on this, actors
are better able to agree on the alignment of their different business models, and find new business
opportunities relating to sustainability (archetypes).
To continue the discussion of this part on the network structure, it needs to be added, however, that
the role of network structure in defining the possibilities to affect in a network is not as black and
white as described but more complex. Many factors contribute to a company’s position and power
as well as to sustainability ambitions in a network. For example, it has been suggested that the
density of network and the centrality of a particular actor in the network are also playing a role in
shaping influences and acceptance within the network, and thus in the attentiveness of companies
to stakeholder concerns and their willingness to accommodate their requests. Shifting from
peripheral to central positions within a network may enable firms to deepen their commitment to
sustainability, and to broaden the scope of their sustainability interactions. Moreover, increased
centrality may give a company a better brokering position that provides opportunities to access
other players and influence the collaboration as well as others’ expectations, perceptions, and
prevailing norms. (Vurro, Russo & Perrini 2009.)
The level of interconnectedness, in turn, is a factor determining a company’s approach toward rule
setting, sustainability commitment, and interactions so that as density increases, relational attitudes
with the goal of creating value for all the involved actors are replacing self-interested and
instrumental approaches. (Vurro, Russo & Perrini 2009.) In addition to network’s structural factors,
also e.g. social attributes (see Chapter 3, Mitchell et al. 1997) affect the formation of network roles,
positions and interaction.
Finally, to conclude this part, developing from the principles of good corporate governance, a focal
company has a moral obligation to use power responsibly, and to positively influence the weaker
parties e.g. by setting standards, serving as role models, through anti-pressure group campaigns,
personnel training and value orientation (Amaeshi et al. 2008).
The background of Part II in the SustainValue project:
Valkokari, K., Valkokari, P., Reunanen, M., Palomäki, K. & Amirmostofian, A. 2012. Towards
sustainability governance in manufacturing networks. D1.2, SustainValue project.
Rana, P., Short, S. & Evans, S. 2013. First stage prototype tools and methods, capable of being fully
used by industrial partners. D2.4, SustainValue project.
Rana, P., Short, S. & Evans, S. 2013. Lessons learned report, documenting the impact from use of the
tools & methods and areas for improvement. D2.5, SustainValue project.
Grefrath, C., Wagner, D., Ruder, P.M., Rotaru, R., Frey, D., Brenken, B., Reunanen, M., Valkokari, P.,
Valkokari, K., Macchi, M., Holgado Granados, M., Fumagalli, L., Evans, S., Rana, P. & Short, S. 2013.
Development methodology for sustainable solutions. D3.3, SustainValue project.
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Part III: Developing sustainability governance within a value
network
Figure 18. The focus of Part III: Developing.
Part III describes the developing phase of the sustainable value network governance process. This
part focuses on the network-level collaboration based on a shared action agenda and feedback loops
enabling co-creation and building trust, the key elements of relational business practices. Based on
the shared action agenda and joint actions the network members evaluate the progress and set new
targets. It is important that parties openly also assess the needs to change network configuration,
structure and operation model. Furthermore, the value network should also be able to collaborate
with its stakeholders as a network.
At the network level, there is no single centralised control mechanism that governs the value
network’s behaviour and dynamics, and changes emerge over time also without any singular entity
deliberately governing the network evolution. Network’s evolution is co-produced based on external
influences from business environment and internal interaction and relationships between network
members. As a consequence, due to complex network relationships and interdependencies also with
other networks, some development activities occur that might be conflicting to some of the actors.
Although value networks are often defined as long-term arrangements, they can (and should) be
distinguished from companies by dynamics and temporariness which means that when the joint
objectives are gained the network can be broken down, for example. Thus, network members should
be prepared for dissolution of network as well as for searching and involving new actors when
required.
Practical challenges:
Value network works together as an entity
Value network collaborates with its stakeholders and integrates them into processes
Critical assessment of the structure and processes as well as of the sustainability level inside the
value network and between network actors, and developing them if necessary
Enabling trusted collaboration schemes, joint processes and action
Developing a vision and plans for the future on the network level
An
alys
ing - Defining and
describing the key players of the value network and business ecosystem
- Identifying impacts over the product life cycle and requirements of stakeholders within business ecosystem
Org
anis
ing - Forming shared
targets and collaboration models both inside the value network and with the stakeholders within business ecosystem
- Aligning business models and integrating processes according to sustainability objectives
Dev
elo
pin
g - Evaluating progress and setting new targets through shared action agenda
- Renewing actions, operations and business models towards sustainable value network
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Tasks of the phase:
• Talking about joint actions as a value network
• Strengthening trust through joint actions
• Thinking sustainability on network level
8 Talking about joint actions as a value network
Companies – or even networks – cannot solve sustainability challenges (Figure 1) alone because in
practice they share the problems with several layers of stakeholders (Figure 19). Therefore
sustainable development requires broader perspective, and the value network should be able to
collaborate with its stakeholders as an entity, as a network.
Figure 19. Layers of networked sustainable development.
Once the governance process has been organised and is in operation, the network actors have the
possibility together to assess that the structure and processes work as planned, and to develop them
if necessary. Still, renewing actions, processes and structures at the network level requires
understanding of their internal and external dependencies. The changes on the network level have
influences to the network’s stakeholders, present and also future society. These dependencies
should be analysed for example with the help of the sustainability matrix (Figure 11) which is a tool
for evaluating and coordinating interests and sustainability objectives of stakeholders.
Relating to stakeholder engagement, the network should also find a balance between including too
many or too few groups of stakeholders to its activities, and thus carry out a categorisation and
priorisation of stakeholders and decide on which stakeholders it will include in its sustainability
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efforts. Moreover, the network’s ability to strengthen collateral relationships also between
stakeholders, e.g. match groups of stakeholders and network actors together when they have same
kind of sustainability concerns, could help configure an open-minded core of involved parties willing
to collaborate for the common good. Thus, building a shared action agenda for the future
development of the value network could take the sustainability governance within a value network
to the next level.
Build shared understanding about strategic objectives at the value network level
include clear identification of risks and opportunities
Identify the stakeholders in the business ecosystem and their input to sustainability
strategy and performance
ensure regular and active engagement with stakeholders
Consider integration of network members’ internal controls and management systems
include transparent communication of cost and benefit sharing and rewarding
Develop shared, measurable and relevant sustainability indicators and metrics
ensure transparency and openly communicate (report and evaluate), include financial
and non-financial aspects
(modified from Kruse & Lundbergh 2010)
Shared action agenda will be implemented through joint actions within the value network and with
stakeholders.
Relating to studying future paths, strategic roadmapping tool is also suitable in this phase (see e.g.
Phaal et al. 2012). The strength of roadmapping approach is in the identification of obstacles and
threats, as well as opportunities, solutions and steps for dealing with them, and in the generation of
shared targets and a common vision. (Phaal et al. 2004; McDowall & Eames 2006.) Keeping the
sustainability target of value network in mind, roadmapping tool can be used to plot the identified
value proposition and business model additions and activities on a timeline that stretches from the
current date to a projected end-point – the long-term sustainability vision. Thus, in addition to
network-level visioning, this kind of strategic planning supports the actual transformation and
implementation.
Developing a joint vision / Recognising a specific problem or need that should be
addressed
Choosing and defining the roadmap layers (typically market/business, product/service,
technology) and sub-layers
Organising facilitated workshops out of which the first ones focus on the main layers of the
road-map, and the last one gathers the themes together on a time-basis (near, mid, long-
term)
Discussions and iteration rounds
Follow-up activity and updating of the roadmap on a periodic basis
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Moreover, as with the most of the other tools presented in this workbook, many of the benefits of
roadmapping come from the process that brings actors together, provides an opportunity for sharing
information and perspectives, and provides a vehicle for holistic consideration of problems,
opportunities and new ideas (Phaal et al. 2004). Previously (in Chapter 4) presented Maturity
assessment for network conditions may serve also at this point of governance process since it can be
used in setting targets and roadmap for future development.
9 Strengthening trust through joint actions
In a strong collaborative relationship all parties discuss together the joint actions, define the
outcomes and can learn together and from each other. Trust is a function of an informal governance
mechanism that can mitigate potential conflicts between network members. Firms that have built
continuous relationships and trust with their network members should benefit from these informal
governance mechanisms by way of utilising knowledge more efficiently. (Filatotchev & Nakajima
2010.) Joint actions and working together as a network is a key for strengthening trust between
network members and stakeholder groups.
The relationship – interaction matrix (Figure 20) aims to evaluate the evolvement of relationships
through joint actions. The vertical axis describes shared understanding between actors, i.e. how well
the interests of network actors are aligned and if they consider network as mutually beneficial. The
actors should consider whether the interests of all participants are aligned to each other and to the
shared sustainability objectives. The horizontal axis defines interaction between the network
members, i.e. how many contacts there are between the actors and whether the communication is
bidirectional or multidirectional. Network-level considerations based on the relationship –
interaction matrix could help the network members to build shared understanding about the
different perceptions of involved actors. This, in turn, supports transparency within the value
network and concurrently strengthens the relationships.
Figure 20. Shared understanding and interaction in relationships (modified from Boutilier 2009, Paasi et al.
2013).
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Sustainability has also been discussed from the view point of cultural change which is closely related
to relational governance through shared norms, willingness to collaborate and social capital
between the actors – and to trust as an enabler behind all of these. Moving from mere compliance,
to engagement of stakeholders, to pursuit of value in all three dimensions of sustainability requires
that organisations, also value networks, develop the necessary culture and internal capabilities to do
so. Three levels of culture with respect to organisational attitudes to stakeholders and the creation
of value have been recognised, and are as follows:
Level 1. A compliance culture: The organisation is not especially engaged with its
stakeholders but basic societal norms are respected and the organisation seeks to avoid the
unacceptable destruction of value (economic, social or environmental).
Level 2. A relationship management culture: The organisation recognises the instrumental
value of good relations with immediate stakeholders (e.g. customers, workers, communities,
business partners), and seeks to provide value that is appropriate for each, within the limits
of what is possible and only after the demand of investors are satisfied.
Level 3. A sustainable organisation culture: Organisation recognises the interdependencies
and synergies between the company, its stakeholders, value networks, and society, and
seeks to maximise the creation of value in terms of economic, social and environmental.
(Wheeler et al. 2003.)
However, it needs to be pointed out that organisations do not have static cultures, and their
relationships with stakeholders and network members vary over time, which causes changes also to
beliefs, attitudes, and norms inside the value network. Similarly as the sustainability continuum
presented in the next chapter, this framework with its three levels can be used as a tool for assessing
and developing current and future organisational approaches to stakeholders and value creation.
(Wheeler et al. 2003.)
These levels of culture can also be used to assess and mirror the atmosphere and attitudes towards
sustainability on the network level. In the development of network governance and network’s
sustainability thinking, the framework of Wheeler et al. can be used for example to pose questions
such as is the network members’ and the whole network’s value proposition feasible, and how
should the cultures be developed in the future. Furthermore, the maturity assessment describing
network conditions (presented in the chapter 4) could also be utilised here to evaluate the value
network’s present state and development needs.
10 Thinking sustainability on network level
Network-level sustainability thinking at its best requires that individual network actors prefer
common good over their self-interests. Still, this kind of thinking cannot be reached if the actors are
not able to trust their network members and are afraid of opportunistic behaviour. Implementing
shared action agenda (considering all three sustainability levels), transparent communication and
feedback loops are prerequisites for sustainability thinking as a network. Through just processes and
joint action network members can even create shared cognitive models which facilitate co-creation.
If the starting points for the network actors are very different regarding sustainability levels, e.g. an
actor is very sustainability driven and the other actors are on the compliance level, at this phase they
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need to recognise and reassess their objectives, separately and together, and make decisions on
how they need to develop and what measures need to be carried out in order to reach the set
objectives. This should be done from the viewpoint of the whole value network so that the current
level and the target level are truly synchronised between network actors. Moreover, the progress
should be evaluated together from time to time.
Corporate sustainability continuum (Willard 2005) can support the framing of the present situation
regarding to sustainable development and in comparing the levels of sustainability of different
actors. The continuum represents the progress of firms on the path towards sustainability and a firm
can utilise it when exploring the question “where are we with respect to sustainability as strategic
choice?”. Furthermore, it can also be utilised in studying future paths for sustainability and
development needs in order to achieve the same level between the network actors, and thereby it
can be utilised also within the strategy development process.
Figure 21. Corporate sustainability continuum (modified from Willard 2005).
Overview of Part III and discussion
After this phase, the network understands its meaning as a collaborative entity that is continuously
developimg and evolving based on interaction internally and externally. Since the network has
developed this far, it needs to have understanding on how to integrate formal and informal
governance, and a vision of the future development needs. The joint vision ensures that each
network member will have competitive edge also in the future, and is able to balance the three key
aspects of sustainability.
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Networked business environment is complex. All network members are taking part to several value
networks, and they must align their sustainability objectives at the company level also in accordance
with the objectives of other networks in the business ecosystem. To add the complexity, also the
stakeholders form, through their interactions, loosely-coupled networks with both aligning and
conflicting interests (Boutilier 2009).
The complexity of networked business environment can be reviewed also from the perspective of a
product or service. In each life cycle phase (e.g. R&D, production, distribution, usage, end-of-life) of
a manufactured product or a service, various value networks come together and interact. In order to
work together, the network members need to align their different ways of actions and approaches
to sustainability. Therefore, from the perspective of sustainable development, the real challenge
here is to consider the needs of all actors involved in the product’s or service’s life cycle already
when making the first decisions about the product or service development (e.g. related to materials,
distribution channels, maintenance services, end of life solutions). As each decision made in a
network taking part in the product or service development affects the requirements and possibilities
of other networks in the preceding or following life cycle phases of the product or service, it is crucial
that networks understand the meaning, role and influence of their operations in this broader setting.
To conclude, in order to develop the business truly sustainable, network members need to support
each other as well as other networks and consider business as co-creation of common good instead
of each member acting in their own self-interest. In order to achieve this and to support
sustainability and life cycle thinking, networks need to actively explore new ways to develop and
renew their business models and governance and be committed, as an entity, to sustainability.
The background of Part III in the SustainValue project:
Rana, P., Short, S. & Evans, S. 2013. Lessons learned report, documenting the impact from use of the
tools & methods and areas for improvement. D2.5, SustainValue project.
Grefrath, C., Wagner, D., Ruder, P.M., Rotaru, R., Frey, D., Brenken, B., Reunanen, M., Valkokari, P.,
Valkokari, K., Macchi, M., Holgado Granados, M., Fumagalli, L., Evans, S., Rana, P. & Short, S. 2013.
Development methodology for sustainable solutions. D3.3, SustainValue project.
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Conclusions: Sustainability in value networks
Sustainability, as well as network development, is a continuous process where involved parties must
work together in order to gain shared objectives. The objectives may often be seen as equivocal and
ambiguous. Moreover, the benefits cannot always be assessed in monetary terms and network
members may reach them within different timelines. Thus, one of the main challenges in network
governance towards sustainability is to ensure that all stakeholders and value network members
perceive positive value outcomes. In a value network, network members need to work together to
ensure both present and future competitive advantage for all parties, but sustainability thinking
challenges them to consider also stakeholders’ and other networks’ viewpoints and thus to have an
even broader perspective to the positive value outcomes.
In addition to the need for multiple value outcomes, renewal is another key issue in the current
dynamic business environment. Sustainable value network should find a balance also between
exploitation of resources and exploration of new business opportunities. The network members
need to support each other to find new business opportunities and aim to co-creation of common
good instead of acting in their own self-interests. The pursuit towards sustainable value networks
and sustainability is nothing but simple, and requires guiding and governing on multiple levels.
Figure 22. Sustainable value integration into manufacturing industry.
Therefore, the present – and especially the future challenge – is to govern sustainability within
various value networks and business ecosystems. The framework presented above (Figure 22)
illustrates the many parts that play a role and interact in this. Besides the governing of the whole
network towards the same target, also sustainability governance at a company level by applying the
current best practices has a significant role in the sustainability development. Thereby, present
norms, standards and practices must be recognised, followed and even surpassed. In addition to the
company level, the norms of good governance, accountability, transparency, responsibility, and
fairness must be complied also at the value network level. In this, the shared action agenda is an
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important mechanism for transition management guiding the actions of individual network
members towards sustainability.
It should also be understood that due to their changing roles the same stakeholders and network
actors can have different requirements in different stages of product life cycle. This being the case,
company level practices and procedures cannot directly be utilised for network level sustainability
development and its governance.
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Terminology
corporate social responsibility (CSR) (see also social responsibility)
CSR is the continuing commitment by business to behave ethically and contribute to economic
development while improving the life of workforce and their families as well as the local community
and society at large (WBCSD 2000)
corporate governance (see organisational governance)
network
a group of three or more organisations connected in ways that facilitate achievement of a common
goal (Provan et al. 2007, p. 482)
organisational governance
system by which an organisation makes and implements decisions in pursuit of its objectives (ISO
2010)
Governance refers to mechanisms (for instance processes, structures, norms) that organisations
deploy to influence organisation members and other stakeholders to contribute to organisational
goals.
social responsibility (ISO 2010)
responsibility of an organisation for the impacts of its decisions and activities on society and the
environment, through transparent and ethical behaviour that
— contributes to sustainable development, including health and the welfare of society;
— takes into account the expectations of stakeholders;
— is in compliance with applicable law and consistent with international norms of behaviour; and
— is integrated throughout the organisation and practised in its relationships
NOTE 1: Activities include products, services and processes.
NOTE 2: Relationships refer to an organisation's activities within its sphere of influence.
stakeholder
individual or group that has an interest in any decision or activity of an organisation (ISO 2010)
stakeholder engagement
activity undertaken to create opportunities for dialogue between an organisation and one or more
of its stakeholders, with the aim of providing an informed basis for the organisation's decisions (ISO
2010)
sustainability
sustainability and sustainable development are synonymous (Rana et al.2009)
sustainable development (ISO 2010)
development that meets the needs of the present without compromising the ability of future
generations to meet their own needs
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NOTE: Sustainable development is about integrating the goals of a high quality of life, health and
prosperity with social justice and maintaining the earth's capacity to support life in all its diversity.
These social, economic and environmental goals are interdependent and mutually reinforcing.
Sustainable development can be treated as a way of expressing the broader expectations of society
as a whole.
sustainable manufacturing
The ability to address world-wide shortages of natural resources, to mitigate the excess of
environmental load of manufacturing activities and to enable an environmentally benign life cycle of
products and services, while continuing to improve the quality of human life. This ability is
developed based on a smart set of innovative methods, practices and technologies in the
manufacturing field; moreover, regulatory measures and coherent social/economic behaviours of
stakeholders are the main important drivers of sustainable manufacturing. Sustainable
manufacturing objectives can be declined in well-known sustainability’s dimensions, i.e. economic,
environmental and social dimension. (Garetti 2009; IMS2020 2009)
sustainable manufacturing network
is an organisational form which (i) targets to gain future competitive edge to all participants through
interaction and collaboration, and thereby (ii) is able to balance the three key aspects of
sustainability (environmental, economic and social aspects) [1]. In manufacturing industries focal
company and its suppliers and customers form a typical value network thus covering both upstream
and downstream networking, and encompassing both production and service networks [2].
sustainability reporting
a broad term considered synonymous with others used to describe reporting on economic,
environmental, and social impacts (e.g., triple bottom line, corporate responsibility reporting, etc.)
(GRI G3.1 Sustainability reporting guidelines)
transparency
openness about decisions and activities that affect society, the economy and the environment, and
willingness to communicate these in a clear, accurate, timely, honest and complete manner (ISO
2010)
value chain (ISO 2010)
entire sequence of activities or parties that provide or receive value in the form of products or
services
NOTE 1: Parties that provide value include suppliers, outsourced workers, contractors and others.
NOTE 2: Parties that receive value include customers, consumers, clients, members and other users.
value network
consists of organisations (companies) co-operating with each other to benefit all network members.
In manufacturing industries focal company and its suppliers and customers form a typical value
network.
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References Table 7. The references (deliverables and others) for each tool presented in the workbook.
Tool References (deliverable(s) and others)
Network picturing tool Valkokari et al. 2004
Value mapping tool Bocken et al. 2013
Grefrath et al. 2013 (D3.3)
Rana et al. 2013 (D2.5)
Short et al. 2012
Relationship analysis Valkokari et al. 2012 (D1.2)
Supplier evaluation matrix Grefrath et al. 2013 (D3.3)
Maturity assessment for network conditions Grefrath et al. 2013 (D3.3)
Holgado Granados & Macchi 2013 (D4.2)
Liyanage et al. 2012 (D4.1
Sustainability matrix Carroll 1991
Grefrath et al. 2013 (D3.3)
Timlon 2011
Actor – contribution – benefit check list Boutilier 2009
Paasi et al. 2013
Sachs & Maurer 2009
Seuring 2011
Valkokari et al. 2012 (D1.2)
Collaboration models, network management
tasks check list
Doz 2001
Provan et al. 2007
Provan & Kenis 2007
Svahn & Westerlund 2007
Valkokari et al. 2012 (D1.2)
Steps for aligning business models Grefrath et al. 2013 (D3.3)
Rana et al. 2013 (D2.4)
Sustainable business model element
archetypes
Bocken et al. 2013
Rana et al. 2013 (D2.5)
Short et al. 2012b
Shared action agenda for the future
development of value network
Kruse & Lundbergh 2010
Valkokari et al. 2012 (D1.2)
Strategic roadmapping tool Phaal et al. 2004
Phaal et al. 2012
McDowall & Eames 2006
Relationship – interaction matrix Boutilier 2009
Paasi et al. 2013
Corporate sustainability continuum Grefrath et al. 2013 (D3.3)
Willard 2005
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List of reference deliverables (SustainValue project):
Palomäki, K., Reunanen, M., Valkokari, K. & Valkokari, P. 2011. Sustainability gaps and stakeholder
requirements. D1.1, SustainValue project.
Valkokari, K., Valkokari, P., Reunanen, M., Palomäki, K. & Amirmostofian, A. 2012. Towards
sustainability governance in manufacturing networks. D1.2, SustainValue project.
Holgado Granados, M. & Macchi, M. 2012. A reference business model architecture for sustainable
manufacturing products, services and processes. D1.3, SustainValue project.
Rana, P., Short, S. & Evans, S. 2013. First stage prototype tools and methods, capable of being fully
used by industrial partners. D2.4, SustainValue project.
Rana, P., Short, S. & Evans, S. 2013. Lessons learned report, documenting the impact from use of the
tools & methods and areas for improvement. D2.5, SustainValue project.
Valkokari, P., Valkokari, K., Reunanen, M., Grefrath, C. & Wagner, D. 2012. Analysis of the existing
methodologies supporting innovation and solution engineering. D3.2, SustainValue project.
Grefrath, C., Wagner, D., Ruder, P.M., Rotaru, R., Frey, D., Brenken, B., Reunanen, M., Valkokari, P.,
Valkokari, K., Macchi, M., Holgado Granados, M., Fumagalli, L., Evans, S., Rana, P. & Short, S. 2013.
Development methodology for sustainable solutions. D3.3, SustainValue project.
Liyanage, J., Beer, J., Valkokari, K., Macchi, M., Rana, P., Short, S. & Evans, S. 2012. Multi-objective
sustainability-performance framework. D4.1, SustainValue project.
Holgado Granados, M. & Macchi, M. 2013. Sustainability metrics and sustainability-performance
KPIs. D4.2, SustainValue project.
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