Business Models for Sustainability


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A brief presentation looking at some key ideas relating to sustainability and business models.

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Business Models for Sustainability

  1. 1. Business Models for Sustainability Gavin D. J. Harper
  2. 2. What is a Business Model? “a conceptual tool that contains a set of elements and their relationships and allows to express the business logic of a specific firm.” (Osterwalder & Pigneur 2002) “stories that explain how enterprises work” (Magretta 2002)
  3. 3. Business Models Literature • Clarification of the „business model‟ concept; – Alexander Osterwalder,Yves Pigneur & Christopher L. Tucci (2005) Clarifying Business Models: Origins, Present and the Future of the Concept, Communications of the Association for Information Systems – Jonas Hedman & Thomas Kalling (2003) The business model concept: theoretical underpinnings and empirical illustrations European Journal of Information Systems 12, 49–59
  4. 4. Business Models Literature ECO-SYSTEM OFFER CUSTOMER Partner Customer network relationship Core Value Value Distribution Customer capabilities configuration proposition channel segment Cost Revenue Success structure streams FINANCE Adapted from Osterwalder: The Business Model Ontology
  5. 5. Sustainable Business Models • Unsustainable business models focus on extracting value from their environment, and from society. Profit is a nil-sum-game. • Sustainable business models focus on adding value to stakeholders, the environment and society. Profit adds value.
  6. 6. Integrating Sustainable Development Into The Business Model Investigating Internalizing Integrating Innovating The process of improvement Capability and Understanding Commitment Partnerships Adapted from: Birkin, F, Cashman, A, Koh, S.C.L., Liu, K., (2009) New Sustainable Business Models In China Business Strategy and the Environment, 18, 64-77
  7. 7. Business Models for Sustainability • Many sustainable innovations make economic sense over the whole life-cycle, but high capital costs deter early adoption. • Business models that can amortise the higher capital costs of sustainable innovation over the lifecycle of the product can help bridge the gap.
  8. 8. Business Models for Sustainability • There are also challenges with bringing some innovative ideas to market – crossing the chasm. • Business model innovation can be cheap (can be done on a beermat) whereas technical innovation is often expensive (extensive R&D).
  9. 9. Crossing the Chasm Can business model innovation help? THE CHASM
  10. 10. Business Models Literature • “Appropriately designed business models are an important opportunity to overcome some of the key barriers to market diffusion of sustainable energy technologies.” (Wüstenhagen & Boehnke, 2006)
  11. 11. Business Models Literature “A mediocre technology pursued within a great business model may be more valuable that a great technology exploited via a mediocre business model” Henry Chesbrough Great Technology + Rubbish Business Model ≠ Sustainable Innovation There is a need for BUSINESS MODEL INNOVATION Great Technology + Kick Ass Business Model = Clean Green Future
  12. 12. Linear Commodity Chains vs. Cyclical Commodity Chains Extraction Production Use End of Life Disposal Extraction Production By creating cyclical commodity chains where products are taken back, remanufactured or recycled by the original manufacturer, materials can be kept in a “closed loop”, not squandered as in a Remanufacture Use linear chain. End of Life
  13. 13. Non-ownership business models • Whilst we have a culture of “ownership”, is owning physical items sustainable in a world of scarce resources. – Riversimple; purchase “mobility as a service” rather than „buying a vehicle‟ – incentive for vehicle manufacturer to make existing vehicles more efficient. – Chemical leasing; more efficient resource use – benefit to chemical provider in recycling.
  14. 14. Dematerialization • Removing the need for increased consumption of physical assets by substituting physical goods with „virtual goods‟, or by consuming a „service‟ rather than a „physical product‟. – Apple iTunes (Does away with physical CD‟s) – Amazon Kindle (Does away with physical books) – Interface Flooring (Selling flooring as a service)
  15. 15. New Business Models Can Provide Equity To Those At The Bottom Of The Pyramid Mature markets: >$20,000 0.5 bn Emerging markets: $3260 to $20000 2 billion 4 billion Survival markets: <$3260 Population Data: World Resources Institute
  16. 16. The ‘Bikini’ Business Model • Sell less, make more. • Can you make the consumer pay the same amount of money, for less physical product, whilst getting greater perceived value? Higher perceived value than a ‘Victorian Bathing Suit’, less physical product!
  17. 17. The ‘Qualifying’ Business Model • Leverage relationships with customers and suppliers to support sustainability. • Set „key qualifying criteria‟ as a component for determining supply chains and target customers. – E.g. Triodos Bank – Will only lend to economically viable businesses that produce explicit social or environmental benefits.
  18. 18. Open Innovation • Less focus on keeping IP in-house. • Sharing has benefits. – GreenXchange virtual marketplace for sustainability IP – Nike‟s Environmentally Preferred Rubber • Sharing IP relating to reduce-toxins rubber for use in trainers, in the hope that it could be useful to other industry sectors.
  19. 19. It is easy to get ‘stuck’ in old patterns of thinking. • “as „best practices‟ turn into „worst practises‟ and „core competencies‟ turn into „core rigidities‟” (Maholtra n.d.)Knowledge Management and New Organisation Forms: A Framework for Business Model Innovation. Challenges – How to overcome: • Institutional lock-in • „Not invented here‟ • Large sunk investments in existing technologies • Entrenched bad practices • Preconceptions about sustainable technologies
  20. 20. Business in the service of Sustainability FOCUS ON THE CUSTOMERS NEEDS NOT THE PUBLIC GOOD! • “focussing the value proposition on the aspects that create the highest (private) customer value, rather than primarily highlighting the public benefits of sustainable energy, is a means to address the challenges posed by environmental externalities.” (Wüstenhagen & Boehnke, 2006)
  21. 21. Business in the service of Sustainability Business will drive the sustainable technology revolution... “Some regard private enterprise as if it were a predatory tiger to be shot. Others look upon it as a cow that they can milk. Only a handful see it for what it really is - the strong horse that pulls the whole cart.” Winston Churchill