Business Models for Sustainability Innovation - PhD Thesis Defence - Florian Lüdeke-Freund - 13 Dec 2013

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The full conceptual paper and further related publications are available at SSRN: http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=1411470

An open reference list of publications on business models and sustainability issues is available here: http://literature.SSBMG.com

Background information

This dissertation deals with the relationships between business models, sustainability innovations, and the business case for sustainability. Its main purpose is to define theoretical and conceptual interrelations between these concepts. According theoretical foundations are developed and combined with empirical studies on the solar photovoltaic industry. This industry is particularly suitable for this kind of research because of its increasing maturity paired with public policy and market dynamics that lead to a variety of business model challenges. The overarching research question is: How can business models support the commercialisation of sustainability innovations and thus contribute to business cases for sustainability?

Theoretical and conceptual foundations are developed from a systematic literature review on the role of business models for technological, organisational, and social sustainability innovations. Further, business model innovation is linked to sustainability strategies and the business case for sustainability. These foundations are applied in an in-depth case study on BP Solar. Moreover, because supportive public policies and the availability of financial capital are important preconditions for commercial success with solar innovations, the dissertation contains a comparative public policy study as well as a conjoint experiment to explore debt capital investors’ preferences for different photovoltaic business models.

The main contribution of this work is the “Business Models for Sustainability Innovation” (BMfSI) framework. It is based on the idea that business models are artificial and social constructs that fulfil different functions based on social interaction and their deliberate construction. The framework emphasises the mediating function, i.e. the iterative alignment of business model elements with company-internal and external factors as well as with the characteristics of environmentally and socially beneficial innovations.

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Business Models for Sustainability Innovation - PhD Thesis Defence - Florian Lüdeke-Freund - 13 Dec 2013

  1. 1. Business Models for Sustainability Innovation Theoretical Foundations and the Case of Solar Energy Florian Lüdeke-Freund PhD Thesis Defence, Lüneburg, 13th December 2013 Committee: Prof. Dr. Stefan Schaltegger, Leuphana University Lüneburg (1st supervisor, chair) Prof. Dr. Frank Boons, Erasmus University Rotterdam (2nd supervisor) Prof. Dr. Ursula Weisenfeld, Leuphana University Lüneburg
  2. 2. Agenda  Introduction and research problem  Research approach  “Business Models for Sustainability Innovation” (BMfSI) framework  The case of solar energy  Summary of results BMfSI framework  Limitations and outlook Florian Lüdeke-Freund 2
  3. 3. Background and research problem  The challenge: Sustainable entrepreneurs have to create business cases for their sustainability innovations cf. Schaltegger & Wagner 2006, 2011; Hockerts & Wüstenhagen 2010  The gap: Lack of understanding of how business models relate to sustainability innovations and business cases for sustainability cf. Boons et al. 2013; Charter et al. 2008  The question: How can business models support the commercialisation of sustainability innovations and thus contribute to business cases for sustainability? Florian Lüdeke-Freund 3
  4. 4. Research approach Question Sustainability innovation ? Business model ? Business case for sustainability Methods  Conceptual (e.g. literature review)  Empirical and case-based (e.g. case study) Results  “Business Models for Sustainability Innovation” (BMfSI) framework  Improved understanding of the business model as a mediator between sustainability innovations and business cases for sustainability Florian Lüdeke-Freund 4
  5. 5. Theoretical perspectives Corporate sustainability Focus on sustainable entrepreneurship and innovation-based business cases Innovation management Focus on sustainability innovations and commercialisation barriers cf. Boons et al. 2013; Charter & Clark 2007; Hansen et al. 2009; Teece 1986, 2006 Florian Lüdeke-Freund cf. Schaltegger & Wagner 2006, 2011; Wüstenhagen & Hockerts 2010 Business models for sustainability innovation Business models Focus on the business model construct and its mediating function cf. Al-Debei & Avison 2010; Chesbrough & Rosenbloom 2002; Teece 2010 5
  6. 6. Theoretical perspectives Corporate sustainability Focus on sustainable entrepreneurship and innovation-based business cases Innovation management Focus on sustainability innovations and commercialisation barriers cf. Boons et al. 2013; Charter & Clark 2007; Hansen et al. 2009; Teece 1986, 2006 Florian Lüdeke-Freund cf. Schaltegger & Wagner 2006, 2011; Wüstenhagen & Hockerts 2010 Business models for sustainability innovation Business model* Business models Focus on the business model construct and its mediating function cf. Al-Debei & Avison 2010; Chesbrough & Rosenbloom 2002; Teece 2010 *cf. Osterwalder & Pigneur 2011 6
  7. 7. Defining a new function for the business model How can business models support the commercialisation of sustainability innovations and thus contribute to business cases for sustainability? Business model Business case for sustainability Sustainability innovation Barriers / challenges Discursive ambiguity Methodological constraints System-level change Directional risks Double externality problem Radical innovation Florian Lüdeke-Freund 7
  8. 8. “Business Models for Sustainability Innovation” framework Empirical paper 1 Conceptual paper 2 Public policy C Business model Sustainability innovation B A Business case for sustainability D Financing Conceptual paper 1 Florian Lüdeke-Freund Empirical paper 2 8
  9. 9. “Business Models for Sustainability Innovation” framework Business environment Munificence Dynamism Public policy Industry change … C Company level Business model Sustainability innovation B Business case for sustainability A D Competition Florian Lüdeke-Freund Stakeholders Financing … … 9
  10. 10. The BMfSI framework applied to the case of solar energy (A) The sustainability innovation interface Business environment Munificence Dynamism Public policy Industry change C Company level Example BP Solar’s business model Business model Sustainability innovation B Business case Corollary Thefor constructability and sustainability of the business adaptability model can compensate for sustainability innovations’ competitive disadvantages A D Competition Florian Lüdeke-Freund Stakeholders … Financing … … 10
  11. 11. The BMfSI framework applied to the case of solar energy (B) The business case for sustainability interface Business environment Munificence Example Dynamism Public policy BP’s solar business case Business model B Corollary Competition Florian Lüdeke-Freund … C Company level Sustainability Business model innovation innovation can amplify the effects of corporate sustainability strategies and improve business case drivers Industry change Business case for sustainability A D Stakeholders Financing … … 11
  12. 12. The BMfSI framework applied to the case of solar energy (C) The public policy interface Business environment Munificence Dynamism Public policy Industry change C Company level B Corollary Business case Thefor business model can adapt to different public sustainability policy environments and combine own resources with complementary assets provided by public policies A D Competition Florian Lüdeke-Freund Stakeholders Financing Example BP Solar’s international activities Business model Sustainability innovation … … … 12
  13. 13. The BMfSI framework applied to the case of solar energy (D) The financing interface Business environment Munificence Examples Dynamism Public policy Solar project financing BP Solar’s financial services Business model B Corollary Competition Florian Lüdeke-Freund … C Company level Sustainability innovation The business model’s financial approach can be aligned with investors and customers’ preferences and lead to new value offerings Industry change Business case for sustainability A D Stakeholders Financing … … 13
  14. 14. Four answers to my research question How can business models support the commercialisation of sustainability innovations and thus contribute to business cases for sustainability? Corollaries How …? Business models compensate for sustainability innovations’ competitive disadvantages (A) -> use business model as competitive device Business models amplify sustainability strategies and business case drivers (B) -> develop and improve business case drivers Business models combine own resources with public policy-based complementary assets (C) -> integrate missing resources and capabilities Business models adapt to investors and customers’ preferences to obtain financing (D) -> develop and explore new financial models Florian Lüdeke-Freund 14
  15. 15. Limitations  Technology bias, i.e. “sustainability innovation” mostly interpreted as technological innovation  Little attention paid to demand side issues, i.e. demand for sustainability innovations is assumed to be given  In a large part based on theoretical assumptions due to a lack of complementary research  Set of constructs and variables needs to be harmonized across individual research projects and papers Florian Lüdeke-Freund 15
  16. 16. Outlook: “Profiting from Sustainability Innovation” as contingency theory  The business model as a contingency factor that influences the ability to profit from sustainability innovation  New contingency theory based on BMfSI framework  Theoretical framework -> “Teece reloaded”  Contingency factor framework -> analytical model  Large data sets -> companies developing sustainable business models  Expected outcomes      Combine types of business models and sustainability innovations Empirically prove business case potential of BMfSI Measure influence of contingencies, e.g. public policies and financing Sustainability-oriented Teecian theory Policy and management implications for developing BMfSI  Possible funding source: Horizon 2020 – sustainable business model track Florian Lüdeke-Freund 16
  17. 17. Thanks a lot for your attention! Florian Lüdeke-Freund 17
  18. 18. Backup Publications contained in PhD thesis      Conceptual paper 1 Boons, F. & Lüdeke-Freund, F. (2013): Business models for sustainable innovation: State-of-the-art and steps towards a research agenda, Journal of Cleaner Production, Vol. 45, 9-19. Conceptual paper 2 Schaltegger, S.; Lüdeke-Freund, F. & Hansen, E. (2012): Business cases for sustainability: The role of business model innovation for corporate sustainability, Int. Journal of Innovation and Sustainable Development, Vol. 6, No. 2, 95-119. Empirical paper 1 Hansen, E.; Lüdeke-Freund, F.; West, J. & Quan, X. (2013, in review): Beyond technology push vs. demand pull: The evolution of solar policy in the U.S., Germany and China, submitted to Research Policy. Empirical paper 2 Lüdeke-Freund, F. & Loock, M. (2011): Debt for brands: Tracking down a bias in finan­cing photovoltaic projects in Germany, Journal of Cleaner Production, Vol. 19, No. 12, 1356-1364. Empirical paper 3 Lüdeke-Freund, F. (2013, forthcoming): BP's solar business model: A case study on BP's solar business case and its drivers, Int. Journal of Business Environment. Florian Lüdeke-Freund 18
  19. 19. Backup Literature           Boons, F.; Montalvo, C.; Quist, J. & Wagner, M. (2013): Sustainable innovation, business models and economic performance: an overview, Journal of Cleaner Production, Vol. 45, 1–8. Charter, M. & Clark, T. (2007): Sustainable Innovation - Key conclusions from Sustainable Innovation Conferences 2003–2006 organised by The Centre for Sustainable Design. Farnham, UK: The Centre for Sustainable Design, University College for the Creative Arts. Charter, M.; Gray, C.; Clark, T. & Woolman, T. (2008): Review: The role of business in realising sustainable consumption and production, in: Tukker, A.; Charter, M.; Vezzoli, C.; Stø, E. & Andersen, M. M. (Eds.): Perspectives on radical changes to sustainable consumption and production. System Innovation for Sustainability. Sheffield: Greenleaf Publishing, 46–69. Hansen, E.; Große-Dunker, F. & Reichwald, R. (2009): Sustainability Innovation Cube - A Framework to Evaluate Sustainability-Oriented Innovations, International Journal of Innovation Management, Vol. 13, No. 4, 683–713. Hockerts, K. & Wüstenhagen, R. (2010): Greening Goliaths versus emerging Davids — Theorizing about the role of incumbents and new entrants in sustainable entrepreneurship, Journal of Business Venturing, Vol. 25, No. 5, 481– 492. Osterwalder, A. & Pigneur, Y. (2011): Aligning Profit and Purpose Through Business Model Innovation, in: Palazzo, G. & Wentland, M. (Eds.): Responsible management practices for the 21st century. Paris: Pearson, 61–76. Schaltegger, S. & Wagner, M. (2011): Sustainable entrepreneurship and sustainability innovation: categories and interactions, Business Strategy and the Environment, Vol. 20, No. 4, 222–237. Schaltegger, S. & Wagner, M. (Eds.) (2006): Managing the business case for sustainability. The integration of social, environmental and economic performance. Sheffield: Greenleaf Publishing. Teece, D. (1986): Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy, Research Policy, Vol. 15, No. 6, 285–305. Teece, D. (2006): Reflections on “Profiting from Innovation”, Research Policy, Vol. 35, No. 8, 1131–1146. Florian Lüdeke-Freund 19

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