A Critical Approach to Sustainable Business Models

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This exploratory presentation will present a critical approach to thinking about sustainable business models. The presentation covers how the construct is developed differently in different literatures, and suggests some of the challenges in developing theory; and includes case studies of business model research in green entrepreneurship to prompt additional discussion about future research directions.

A Critical Approach to Sustainable Business Models

  1. 1. A critical approach to sustainablebusiness modelsAdam J. BockUniversity of Edinburgh Business School
  2. 2. Agenda• Framing the discussion• What’s in the literature?• An entrepreneurial perspective• Some thoughts from research• Discussion
  3. 3. FramingHow do we understand “sustainable business model”?
  4. 4. 1) Sustainable “business model”• A business model with medium-long term viability, based on competitive strategy• “The opportunity has an attractive, sustainable business model; it is possible to create competitive edge and defend it.” (Sahlman 1997)• “Strategy analysis is thus an essential step in designing a competitively sustainable business model.” (Teece 2010)
  5. 5. 2) “Sustainable business” model• A model of a venture/firm with ecological sustainability attributes; a system for creating, describing, or measuring sustainability of a venture/firm.• “A sustainable business model is a roadmap for achieving sustainability and deals with the issues and dynamic relationships of sustainability dimensions of the businesses.” (Ahmed and Sundaram 2007)
  6. 6. 3) “Sustainable business” “business model”• A business model of a venture/firm with ecological sustainability attributes• “[F]irm-level sustainability and…sustainability for the system that an organization is part of.” (Stubbs 2008)
  7. 7. 4) Sustainable “sustainable business” “business model”• A business model of a venture/firm with ecological sustainability attributes and medium-long term viabilityForum for the future• “Commercially successful – why is this proposition valuable to the customer and how can you deliver at a profit from it?”• “Part of a sustainable society. It is not possible to be a sustainable business in an unsustainable economy.”• “Future ready. For instance, it will succeed in a world of rising, volatile energy and commodity prices.”http://www.forumforthefuture.org/blog/characteristics-sustainable-business-model
  8. 8. Mapping the field1 Sustainable “business 3 “Sustainable business” model” “business model”2 “Sustainable business” Entrepreneurship 4 Sustainable “sustainable model business” “business model” 1 3 4 2 I/O Economics Ecology / Strategy Ethics
  9. 9. Field theory Strategy Entrepreneurship SustainabilityTheoretical Ecological Competitive position Opportunityfocus balance? Net systemicMetric Profitability Market exploitation impact? Regulations, 3rdFeedback / EBIT/ Market Growth / finance party assessment,monitoring capitalization “Ecotopia”
  10. 10. Mapping the field 3 “Sustainable business” Entrepreneurship “business model” 1 3 4 2 I/O Economics Ecology / Strategy Ethics
  11. 11. Literature challengesGOOG “Business model” “Sustainable business”SCHOL Journal Cites Journal Cites1 Ind Corp Change 1024 Business Strat Env 942 J Business Research 431 Sustainable Development 673 E J Info Sys 271 J Sustainable Tourism 554 Harvard Bus Rev 233 J Cleaner Production 585 Electronic Mkts 1616 J Org Change Mgmt 516 Strategy & Leader 123 J Business Ethics 447 Strategic Mgmt J 186 J Mgmt Education 488 Harvard Bus Rev 902 Business Strat Env 399 Int J Physical Distrib 155 World Development 3510 CA Mgmt Rev 624 Info and SW Technology 40
  12. 12. Business modelCognitive representationRealize opportunityDesign of organizational structures – Resources – Transactions – ValueZott and Amit 2001; Teece 2010; George and Bock 2011
  13. 13. Business model theoryNarrative mechanism (Magretta 2002) – Linked to resource acquisition/assembly (Lounsbury & Glynn 2001) – Sense-making and social construction (Downing 2005) – Consistent use in practice (George & Bock 2011)Linked to value creation – In e-business (Amit & Zott 2001) – In bringing innovation to market (Chesbrough & Ronsenbloom 2002)Match to strategy improves early stage firm performance (Zott & Amit 2008)Business model innovation distinct from product/process innovation – Higher returns (Christensen et al 2009) – Different antecedents, processes (Bock et al 2012)
  14. 14. Sustainable businessMultiple “metrics”• Social justice (Stead & Stead 1994)• Fair economic development (Moser 2001)• Ecological / environmental impact (Gladwin et al 1995)• Ethical business practice (Bradbury 2003)But very limited validation “To date, we are not aware of any serious academic research into the methodology behind the construction of sustainable indices.” (Fowler & Hope, 2007, A Critical Review of Sustainable Business Indices and their Impact, Journal of Business Ethics)
  15. 15. Some inductively-driven thoughtsCase: Sustainable Spaces Recurve“Recurve is powering the residential energy efficiency market bydelivering the most advanced energy modeling, reporting andpricing software tools to help Home Performance contractors growand profit, while delivering whole house performance.”
  16. 16. Sustainable Spaces RecurveBusiness Custom home energy Energy audit software forModel efficiency audits and construction / retrofit remodeling firmsResources Tacit knowledge Data-driven heuristics • Residential construction idiosyncrasies Customer interactionTransactions Direct consumer sales Direct business sales B2C service B2B relationship Selling-upValue Status / green Reduce costs of value- Cost savings added green construction and refits
  17. 17. Some inductively-driven thoughtsCase: Metalysis“Metalysis is a technology company that is scaling up the FFCProcess for the production of titanium, tantalum and other highvalue metals…. The FFC process has a very low environmentalimpact and provides substantial environmental and sustainablebenefits over conventional processes.”
  18. 18. Titanium TantalumBusiness JV for large-scale ore Pilot scale facility andModel processing scale-up to full productionResources IP IPTransactions Close relationship with Close relationship with suppliers and partner (no suppliers sales)Value Reduction in cost and Significant reduction in environmental impact in cost of Ta for high-value high-grade Ti production applications
  19. 19. Thoughts Recurve MetalysisBusiness Model Increase energy- Cost efficient high-value efficiency capabilities of metals ore processing construction firmsSustainability Downstream impact on Reduction in carbon energy utilization footprint and environmental impactReflect on prior BM change required to No clear link betweenresearch link sustainability goals BM and sustainability with operational viabilityImplications for Double-bottom line Classification /research or frameworks limited by characteristics oftheory-building operational parameters sustainability?
  20. 20. Sustainability / Social ValueWhat is our measurement framework? Intent Process Outcomes Measure? Boundary? Absolute vs. Threshold? Timescale? incremental? Motivation? Reference? Measure?
  21. 21. Research directions • Org theory: How does the sustainability of business model components affect whether the firm is a “sustainable business?” • Org theory: How are business model dominance Resources structures linked to sustainability characteristics and the behavior of sustainable businesses? • Strategy: How do the sustainability characteristics of business model components affect business model or Value firm-level sustainability and firm-level outcomes?Transactions • Entrep strategy: How does business model innovation / change affect firm sustainability characteristics? • Entrep mgmt: How do managers address the conflicting metrics for entrepreneurial and sustainability outcomes? • Entrep behavior: What factors drive opportunity discovery and exploitation via sustainable businesses?
  22. 22. Entrepreneurial prioritiesOpportunity theory – Profit/utility maximization (e.g. Friedman) – Alertness / prior experience (Kirzner; Shane) – Unsatisfactory description for emerging “social” entrepreneursSocial entrepreneurship – All businesses are “socially embedded” (Davis 1973) – “Double” or “Triple” bottom line are not useful decision heuristics – Distinguished by: (Dacin, Dacin & Matear 2010): – Individual differences – not well differentiated – Operating sector – not well differentiated – Processes/resources – Primary missionMulti-level priority mapping?
  23. 23. Entrepreneurial priorities Social Locus of Aspiration Industry Firm Group Indiv. Low High Organizational CommitmentSource: George and Bock, 2012“Models of Opportunity”
  24. 24. Confederate Motorcycles
  25. 25. Confederate Priority Map Social Individual expression Locus of Aspiration Industry New industrial Design Firm Value Group Employee development Indiv. Low High Organizational CommitmentSource: George and Bock, 2012“Models of Opportunity”
  26. 26. More thoughts• It’s great to have new constructs, but helpful if we can agree on defining characteristics and parameters• The concept of sustainability tends to be used vaguely, without clear boundaries or boundary-conditions• Challenges in measurement make “sustainability” a difficult construct to operationalize (unlike growth / profit)Dacin, Dacin, & Matear. 2010. Social Entrepreneurship: Why We Don’t Need a New Theory and How We Move Forward From Here. Academy of Management Perspectives.
  27. 27. Thank you.

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