Business model innovation for sustainability grid

Today, the business model innovation for sustainability grid was launched.

The business model innovation for sustainability grid was developed to inspire businesses to reconceive how they operate and become more future proof when faced by growing sustainability challenges. It was based on based on research by Nancy Bocken, Samuel Short, Padmakshi Rana and Steve Evans (University of Cambridge)A literature and practice review to develop sustainable business model archetypes. It is maintained by Plan C the Flemisch network for sustainable management of materials.

To grab the opportunities of a sustainable future, innovations need to introduce environmental and social considerations at the core of the business model, while retaining a profitable proposition. Classified around 8 archetypes of business model innovations for sustainability, a multitude of approaches and real life business cases is presented.

The business model innovation for sustainability grid is available here.

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Sufficiency based sustainable business model innovations – towards a typology

Business models define the way a firm does business. Sustainable business model innovation may be viewed as an important lever for change to ‘business as usual’ to tackle pressing sustainability issues. To expand the scope of business model innovations in practice and research beyond product service systems (e.g. Tukker, 2004), green (FORA, 2010) and social business models (Yunus et al., 2010), sustainable business model archetypes were developed. These include: Maximise material and energy efficiency; Closing resource loops; Substitute with renewables and natural processes; Deliver functionality rather than ownership; Adopt a stewardship role; Encourage sufficiency; Seek inclusive value creation and Re-purpose the business for society/environment (see figure below).

Figure

 Figure: Sustainable Business Model Archetypes. Adapted from Bocken et al. (2014)

 Sufficiency based sustainable business models seek to reduce consumption and, as a result, production. The focus is on influencing consumption behaviour, which may involve product design for durability, a major shift in promotion and sales (e.g. no overselling) and supplier selection based on durability. Profitability would typically result from premium pricing, customer loyalty, and better (particularly more durable) products, while societal and environmental benefits include reuse of products and resources across generations, reductions in product use (impact) and societal education (Bocken et al., 2014). Perhaps the opposite of premium models are ‘frugal innovations’ (or Jugaad innovations) where business model solutions are developed with minimum resource inputs. This may also be viewed as a form of ‘sufficiency’.

The figure below includes a typology for sufficiency-based business models, which may facilitate the process of building up these business models.

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  Figure: A sufficiency-based business model typology (Bocken, 2014)

 

Explanation of the Sufficiency Typology

The examples are briefly explained below:

Extending product life – Ensuring the product will last as long as possible. Characteristics for design: durability, reparability, modular design. The original customer retains ownership of the product. The business model is often ‘premium’ but includes high levels of service.

Encourage direct product reuse – Reuse of the product across markets and generations. After use by one customer, it will be passed on to another ‘customer’ for free or a price mostly lower (except e.g. antiques, collector items) than the original purchase price. Companies such as Ebay facilitate this. A different example of direct product reuse can be seen at Reduse, home of the Unprinter. This start-up (which I support as an advisor) has developed a technology to remove print from paper and make paper reuse possible.

Sharing resources across more people – Sharing the same product across multiple customers. The customer never ‘owns’ the product. Product sharing platforms are emerging to facilitate this.

Mitigate product use – Mitigating the use of energy / resources by individuals and businesses such as demand management by energy providers stimulated by government incentives.

Mitigate product life cycle resource use – Solutions focused on minimising resources, the most prominent example being ‘frugal innovations’. Unfortunately, most of these solutions have been focused on low income countries and have not yet widely expanded to the ‘west’.

References

  • Bocken, N.M.P., 2014. Sufficiency based sustainable business model innovation. Sustainability Science Congress, 22-23 October 2014. Copenhagen.
  • Bocken, N.M.P., Short, S.W., Rana, P., Evans, S. 2014. A literature and practice review to develop sustainable business model archetypes. Journal of Cleaner Production, 65, 42–56
  • FORA, 2010. Green business models in the Nordic Region: A key to promote sustainable growth, Denmark. Retrieved  http://www.foranet.dk/media/27577/greenpaper_fora_211010.pdf
  • Tukker, A., 2004. Eight types of product–service system: eight ways to sustainability? Experiences from SusProNet. Business Strategy and the Environment, 13(4), 246–260.
  • Yunus, M., Moingeon, B., Lehmann-Ortega, L., 2010, Building Social Business Models: Lessons from the Grameen Experience, Long Range Planning, 43(2-3), 308–325.

 

Sustainable business model archetype: Encourage Sufficiency

Sustainable business model archetypes are groupings of mechanisms and solutions that contribute to building up the business model for sustainability. We developed these as part of collaborative research to develop a common language that can be used to accelerate the development of sustainable business models in research and practice. The sustainable business model archetypes are:

  • Maximise material and energy efficiency;
  • Create value from ‘waste’;
  • Substitute with renewables and natural processes;
  • Deliver functionality rather than ownership;
  • Adopt a stewardship role;
  • Encourage sufficiency;
  • Re-purpose the business for society/environment;
  • Develop scale-up solutions.

 

The “Encourage sufficiency” sustainable business model archetype for example is about solutions that actively seek to reduce consumption and production. The focus is on customer relations and influencing consumption behaviour, product design for durability, a fundamental shift in promotion and sales (e.g. no overselling) and supplier selection based on durability. Profitability would typically result from premium pricing, customer loyalty, and gaining market share from better (e.g. longer lasting) products.  Societal and environmental benefits of sufficiency-based business models include reuse of products and resources across generations, reductions in product use, and societal education (Bocken et al., in press).

Examples

In the clothing industry, the Common Threads Initiative by Patagonia is a good example of ‘sufficiency’. The company pledges to ‘build useful things that last, to repair what breaks and recycle what comes to the end of its useful life’, whereas customers in return are asked to pledge to only but what is needed and will last, make repairs and reuse (share) what is no longer needed and recycle anything else. Patagonia also asks customers to “Not Buy” their jackets, trying to make them aware of the effects of their purchases and encourage them to make things last rather than buying new. However this may have the same effect as asking people not to think of a pink elephant… yes, more purchases!

Clothing swaps, where you come together with friends and swap clothes you no longer wear, are a fun way to freshen up your wardrobe without having to buy something new. It makes use of the ‘resources’ we have in the back of our wardrobes. This also encourages reuse of resources rather than new sales. A specific initiative by M&S encourages its customers to ‘shwop’: to donate clothes to charity through collection bins placed in their stores. In return, customers receive discount vouchers for M&S. Although shwopping encourages customers to have a critical look at their wardrobes and give unwanted items to charity, it does not encourage fewer sales, it may even encourage more by generating traffic to the store.

In the furniture industry, Vitsoe is an interesting example of ‘sufficiency’. Vitsoe has created a video, which shares vision against planned obsolescence – ‘the design and manufacture of products that are deliberately intended to have a limited useful life’ –, which results in an endless cycle of replacement and repurchasing. Vitsoe’s design is aimed to be timeless and durable and its 606 shelving system is still compatible with its first system decades ago. Vitsoe does not give discounts and employees do not receive sales commissions. Vitsoe seeks to provide customers with furniture solutions that  ‘do more with less’.

How can a business still make money if it sells less? Neither Vitsoe nor Patagonia is on the lower end of the price spectrum – on the contrary. Their products are premium-priced but they believe in good customer service. Vitsoe for example helps customers reinstall its shelves when they move home. Patagonia supports repair of its products. The proverb “I am not rich enough to buy cheap things!” applies here.

Although the number of sufficiency-based business models is not yet overwhelming, the concept of making products that last and are repairable is not new and there is an opportunity to make it stylish again to make stuff last. In the fashion industry there are several emerging business models such as Mud Jeans who have combined a sufficiency-based idea with leasing, or the ‘deliver functionality, not ownership’ archetype discussed in the next blog. What interesting sustainable business model innovation-combination will be next?

Source

This blog is based on the following article:

Bocken, N.M.P., Short, S.W., Rana, P., Evans, S. A literature and practice review to develop Sustainable Business Model Archetypes. Journal of Cleaner Production (in press/ Open Access)

Sustainable business model archetypes

Sustainable business models include a triple bottom line approach and consider a wide range of stakeholder interests – including environment and society – into the way business is done. They are important in driving corporate innovation for sustainability, can help embed sustainability into business purpose and processes, and serve as a key driver of competitive advantage.

Many innovative concepts and approaches may contribute to delivering sustainability through business models, such as dematerialisation and choice editing, but these have not been collated under the theme of business model innovation. Through literature and business practice review, a wide range of examples, mechanisms and solutions that contribute to business model innovation for sustainability were identified. These were collated and analysed to develop a categorisation of sustainable business model archetypes.

Sustainable business model archetypes are groupings of mechanisms and solutions that contribute to building up the business model for sustainability. The aim is to develop a common language that can be used to accelerate the development of sustainable business models in research and practice.

The sustainable business model archetypes are:

  • Maximise material and energy efficiency;
  • Create value from ‘waste’;
  • Substitute with renewables and natural processes;
  • Deliver functionality rather than ownership;
  • Adopt a stewardship role;
  • Encourage sufficiency;
  • Re-purpose the business for society/environment;
  • Develop scale-up solutions.

 

Each of these archetypes will be discussed in greater detail in subsequent blog posts.

 

Source

This blog is based on the following article:

 

Bocken, N.M.P., Short, S.W., Rana, P., Evans, S. A literature and practice review to develop Sustainable Business Model Archetypes. Journal of Cleaner Production (in press/ Open Access)

 

 

 

Concentrated, cold-water laundry detergent

In Europe, 43% of laundry washes are done at 40°C and 17% at 60°C or above, the average laundry washing temperature being 41°C. Reducing the wash temperature from 40°C to cold can reduce energy use by 50-65%. It seems that laundry detergent product innovations, campaigns to wash at lower temperatures, updated washing labels in clothing and the availability of more efficient washing machines have led to an increase in the number of cold washes in Europe. Washing at or below 30°C is on the rise: 32% of loads were washed at 30°C or colder in 2011 (up from 29% in 2008) (laundry data are retrieved from A.I.S.E., 2013).

The development of concentrated cold-water laundry detergent can be seen as a win-win-win business model innovation, because it provides opportunities and benefits for manufacturers (of laundry detergent and new more efficient washing machines), retailers, consumers and the environment.

 Win-win-win:

  • Manufacturer-win: reduced packaging and reduced cost. More products per shipping
  • Retailer-win: Less shelf space, because of concentrated products, more space for other products.
  • Consumer-win: Save cost (energy and water use) on low temperature washes, smaller bottles take up less space
  • Sustainability-win: energy and carbon emissions reductions in product use, packaging reduction which results in reduced resource use, customer education about climate change

 

Examples:

Examples of companies who have created or promoted concentrated cold-water laundry detergent include P&G (e.g. Tide, Ariel), Unilever (Small & Mighty) and Marks & Spencer.

 

The concept of win-win-win business models is introduced in the following article:

Bocken, N., Allwood, J. 2012. Strategies to reduce the carbon footprint of consumer goods by influencing stakeholders. Journal of Cleaner Production, 35, 118-129.  (Table 10 and Figure 3 include the win-win-win business models)

Second hand clothing collection and sales at retail

Consumers in the UK spend about £780 per head per year on textiles and clothing, which amounts to 2.15 million tonnes in total or 35kg per person, of which one-eight is sent for re-use through charities and the rest is discarded. This shows ample scope to keep clothes for longer and to make them available for reuse.

Innovative clothing retailers have started to offer consumers the opportunity to return second hand clothing to a store for new product discount vouchers (e.g. M&S) or asked consumers to pledge to make their products last as long as possible, keep them for longer and buy second hand. Patagonia now sells second hand clothing in its stores as well as through Ebay through their Common Threads initiative.

Win-win-win:

  • Manufacturer-win: Brand loyalty, potential to explore reuse of materials to make new garments or textiles products
  • Retailer-win: Generates traffic to stores and can induce more sales
  • Consumer-win: Affordability, feel-good factor
  • Sustainability-win: potential absolute reduction in raw material use through reuse, reductions in landfill, consumer education about reuse

 

Examples:

  • The Common Threads Partnership: reduce, reuse, recycle and reimagine
  • Shwopping: bringing old clothing items into an M&S store (even if not from M&S) each time you come to buy something new.

 

The concept of “win-win-win business models” is introduced in:

Bocken, N., Allwood, J. 2012. Strategies to reduce the carbon footprint of consumer goods by influencing stakeholders. Journal of Cleaner Production, 35, 118-129. http://www.sciencedirect.com/science/article/pii/S0959652612002545   (Table 10 and Figure 3 include the win-win-win business models)

Sharing business models and using overcapacity

Sharing business models are about using “ over-capacity” to a benefit. As the sharing platform Yerdle estimates, 80% of the things in our homes are used less than once a month, and self-storage has gone up 1,000% over the past 3 decades. The accumulation of unused stuff also happens outside the home: cars are typically used less than one hour a day and usually by just one person at a time (in the US). We seem to be accumulating a lot of stuff that is not being used. This makes the case for sharing rather than buying.

Under-used cars (Buzz car) and seats in cars (BlaBla car), flats (AirBnB) and beds in flats (couchsurfing) are now made available to other potential users through business models which charge a ‘use fee’. In this way, excess capacity can be used more effectively. Robin Chase (Zipcar) refers to ‘car sharing’ business models and even ‘bed sharing’ business models to describe these new business models.

Which sharing business model will be next?

 

Win-win-win:

  • New business-win: In the case of BlaBla car and Buzz car (car sharing and peer car rental) everyone can be an entrepreneur. It can make driving more affordable, or, in the case of car sharing, can make driving a more fun and social experience.
  • Incumbent business-win: Although existing businesses may suffer (e.g. the hotel industry from AirBnB) some who act quickly enough (e.g. Avis who bought Zipcar) can transition to new business model models in this way.
  • Consumer-win: Convenience, cost, environmental impact, socialising benefits.
  • Sustainability-win: use of overcapacity, better use of current resources, reduced need to use new resources (e.g. to build new cars, hotel rooms)

 

Examples:

 

The concept of “win-win-win business models” is introduced in the following article:

Bocken, N., Allwood, J. 2012. Strategies to reduce the carbon footprint of consumer goods by influencing stakeholders. Journal of Cleaner Production, 35, 118-129. 

Win-win-win sustainable business models

Cooperative strategies, where organisations bundle their expertise’s to create positive outcomes, are becoming more important to tackle sustainability challenges, which cross company boundaries. They are about creating synergies and ‘win-win’ situations.

‘Win-win-win’ sustainable business models create advantages to at least three different types of groups, for example, manufacturers, retailers and consumers, while positively contributing to the environment and society.

A few examples of win-win-win business models include: product refill business models, sharing business models, and more specifically, second-hand clothing collection and sales at retail, and concentrated cold-water laundry detergent.

Collaborative activities may include:

  • Manufacturers and retailers jointly develop and pilot test low carbon footprint business models such as refillable products.
  • Coordinated packaging and in-store promotions can educate consumers about their “win”. For example, store promotions can show the cost saving of reusing packaging. Manufacturers might print the environmental benefits of reusing packaging on the label.

 

Product refill business models in stores 

Product refill business models include packaged consumer products that can be directly refilled and reused after use and reduced-material refill pouches. There may be financial incentives, such as discounts on the next purchase or a free product after a certain number of refills, to stimulate packaging reuse.

In a broad sense, reusable grocery bags may be viewed as a “refill product”, especially when supermarkets give store credits to incentivise reuse.

Win-win-win:

  • Manufacturer-win: recurring customers, engagement with sustainability
  • Retailer-win: Generates traffic to the store, one successful refill model can pave the way for more refillable products
  • Consumer-win: may save cost, reduces waste, in some cases, allows consumers to (re)use the containers they prefer.
  • Sustainability-win: material reuse, waste reduction, consumer education

 

Examples:

Companies who have done this or still do this include: The BodyShop, WholeFoods (US Grocery store), Kiehl’s (premium skincare), Ecover (eco-cleaning), and “Unpackaged”, a UK ‘organic refill grocery’.

 

The concept of “win-win-win business models” is introduced in the following article:

Bocken, N., Allwood, J. 2012. Strategies to reduce the carbon footprint of consumer goods by influencing stakeholders. Journal of Cleaner Production, 35, 118-129. 

 

Sustainable Business Modelling

A business model describes how a company does business and what its value proposition (benefits or offering to customer), value creation (resources, suppliers and other partners who help create value) and value capture mechanisms (cost structures and revenue streams) are.

Sustainable business models consider a much wider group of stakeholders than just customers, and explicitly consider society and environment as stakeholders. They go beyond creating value for a customer and include concerns about the benefits and harms to society and the environment by the way business is done. This is a much more systemic view on doing business than making money by delivering benefits and value to customers.

I am interested how current business models can become more sustainable and how start-ups can develop sustainable business models from the outset.

Together with my colleagues Sam ShortPadmakshi Rana, and Steve Evans, I developed the Value Mapping Tool, to assist in ‘sustainable business modelling’ – the process of inventing new sustainable business model ideas.

Value Mapping Tool

Value mapping tool. Source. Bocken et al. (2013)

This tool can help users to:

  • Understand the positive and negative aspects of value in a network of stakeholders
  • Identify conflicting values (i.e. where one stakeholder benefit creates a negative for another stakeholder)
  • Identify opportunities for business model redesign – especially to improve societal and environmental impact

Here is a simplified process of using the value mapping tool to use for your business:

Each ring in the diagram represents a different brainstorm. During each of these brainstorms, all of the following “stakeholders” need to be considered:

  • Customers – perceived and actual benefits and negative impacts. You may want to break this down into different customer segments.
  • Network actors – in short, the firm and its supply chain responsible for creating value. This may be broken down into particular key suppliers or partners.
  • Environment – benefits (afforestation) and negative impacts (e.g. emissions to air).
  • Society – benefits (e.g. health) and negative impacts (e.g. working conditions)

 

Brainstorm 1: the purpose of the business is discussed. Why is the business here in the first place? What is the product or service offered by the company or business unit? What is the primary reason for the existence of the business (this should not be primarily financial)?

Brainstorm 2: what value is created for the different types of stakeholders? What positive value is created and what negative value do all the stakeholders mitigate?

Brainstorm 3: what is the value destroyed or missed or negative outcomes for any of the stakeholders? Consider for example, waste to landfill or loss of local employment caused by offshoring. Are there contradicting impacts at a global and local level? Is the business missing an opportunity to capture value, or squandering value in its existing operations? For example, are assets, capacity and capabilities under-utilised? Are potentially useful materials going to landfill?

Brainstorm 4: This brainstorm is intentionally put at the end and is about blue-sky thinking. The focus is on turning the negatives into positives. What new positive value might the network create for its stakeholders through introduction of activities and collaborations? What can you learn from competitors, suppliers, customers or even other industries?

To move from ideas to implementation the brainstorm may be followed up by roadmapping the activities and business model elements to be changed. A great way of doing this is using the Business Model Generation work by Osterwalder and Pigneur (see www.businessmodelgeneration.com for more details). We have adapted their “strategy canvas” here:

 

Business Model

Overview of business model elements. Source: www.businessmodelgeneration.com. Adapted by Bocken (2013)

 

For a more detailed discussion of the value mapping tool, I refer you to the full research article:

Nancy Bocken, Samuel Short, Padmakshi Rana, Steve Evans, (2013) “A value mapping tool for sustainable business modelling”, Corporate Governance, Vol. 13 Iss: 5, pp.482 – 497. DOI link: 10.1108/CG-06-2013-0078

The open access version of this article (not edited by the journal) is available here: https://www.repository.cam.ac.uk/handle/1810/245028