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

The “idea-action gap” and sustainability

Why do factories within the same company, which make the same products, using similar technology, differ so much (up to 500%) in environmental performance (e.g. energy and water use)?

This is one the main research challenges our research centre (www.industrialsustainability.org) is looking into.

Already more than 10 years ago, Pfeffer and Sutton were annoyed by the fact that many smart people in smart organisations do not transfer their knowledge into action. They found that 42 food plants using similar technology in one company varied up to 300% in performance. This is not dissimilar from the environmental performance variations we identified by talking to large companies (Bocken et al., forthcoming).

The reason why knowledge is not shared does not seem to be “complexity”. For instance, when the car company Honda’s set out to improve the performance of its suppliers, this resulted in productivity increases averaging 50% across the 53 suppliers involved in the programme (Honda’s BP; Best Practice, Process, & Performance). The scientific knowledge used for changing production lines was concrete and simple, rather than abstract and complex (Honda example is taken from MacDuffie and Helper mentioned in the book).  As is also found in social psychology literature, setting a goal may really help to make things happen. Then, knowledge, which sits with individual workers, may be shared.

Pfeffer and Sutton give many good insights in causes of the knowledge-action gap, which may help understand how to overcome this, for instance:

  • Knowing “what” is not sufficient. Often “tacit knowledge” – the knowledge people sharing by talking to each other, knowledge you obtain by trial-and-error, and demonstrating what they do to others – is not captured in databases and management systems.
  • Don’t confuse memory (e.g. historical thinking) with thinking. The business rationale “this is how we always do this” may not be a very strong one but is often used.
  • Be aware of instances when talk substitutes action
  • Be aware of instances when fear prevents action
  • Avoid complicated measurement systems and “over-measurement” which obstructs good judgment (common sense is important!)
  • Avoid unhealthy competition in organisations

 

Each of these areas can lead to very specific analysis and research. But one of the “pitfalls” in particular made me think about the role of academics in particular: When talk substitutes for action. Some of the signs of when talk substitutes action observed by Pfeffer and Sutton (p. 54) for instance include:

  • Talking a lot is mistaken for doing a lot
  • There is no follow up to ensure whether what was said is being done
  • People forget that merely making a decision does not change anything
  • Meetings and reporting become an action in their own right & have little effect on action
  • People are evaluated on how smart they sound (rather than on things they do)
  • Complex language, ideas and processes are thought to be better than simple ones (although simplicity may be preferred!)
  • Status comes from talking a lot and being critical of others ideas

 

Industrial sustainability is an area, which lends itself for jargon and discussion around terminology. Being aware of instances when talk takes the overhand of action is important. Can this awareness in itself lead to more action than just talking? Certainly, the best action to overcome the gap between knowledge and action is action – a maybe unsurprising recommendation by Pfeffer and Sutton! Action based research and research close to practice may be the way forward to tackle this research area and make a real difference.

 

Links:

Bocken, N., Morgan, D., Evans, S. 2013. Understanding environmental performance variation in manufacturing companies. Journal of Productivity and Performance Management, Special issue on performance measurement of sustainable supply chains, 62 (8) (forthcoming)

EPSRC Centre for Innovative Manufacturing in Industrial Sustainability: www.industrialsustainability.org

MacDuffie, P.  Helper, S. 1997. Creating Lean Suppliers: Diffusing Lean Production through the Supply Chain. California Management Review, 39 (summer), 118-150

Peffer, J., Sutton, R. 2000. The Knowing-Doing Gap. How smart companies turn knowledge into action. Harvard Business School Press, Boston MA.

Can marketing be used to ‘save the environment’?

How can marketing ‘save the environment’?

Social marketing is about marketing activities to benefit society. Consider marketing against smoking. The “4 Ps of marketing” or “marketing mix” (product, place, price, promotion) can be used to limit cigarette sales. You can place cigarettes behind the counter (place), price them ridiculously high, make awkward packaging (“smoking kills”) and forbid public marketing campaigns (promotion).

We can also use marketing to encourage behaviour, which is good for the environment (such as using low energy light bulbs) and discourage other behaviours, which are bad for the environment (e.g. showering long).

Changing behaviour is not easy. People might not be aware of the necessity, be able to act (e.g. because of financial constraints), or willing to act (e.g. because they may not care). How can we use marketing for such a range of people? Perhaps, the most successful marketing campaigns use all the elements (product, place, price, promotion) of the marketing mix simultaneously. Also, if people do not care about the environment necessarily, they may want to be convinced about other benefits of behaviour change.

Consider the product life cycle of a T-Shirt: the product life cycle starts at sourcing the raw materials (e.g. cotton), which is made into yarn, which is subsequently made into fabric, sewn together, shipped, stored in shops, bought by a consumer, washed, dried and perhaps ironed, and hopefully reused many times before being sent to a charity or recycling bank. This is a very complex system of activities. Over the life cycle of a T-shirt washing and drying the T-Shirt many times constitutes the main environmental impact (carbon emissions) (see Allwood et al., 2006).

A designer can decide to change the product so that it does not have to be washed too often. Think about using sweat-wicking materials, or: removing the armpits from garments and coating areas where most stains usually appear (presented by an eco-fashion designer a few years ago!).  The other benefits of washing clothing less often, can also be emphasised on the clothing tag: your clothes may last longer (promotion). The financial benefits of washing at low temperatures and not tumble-drying (price) and not having to iron by leaving your clothing to dry on a hanger may convince others that this is a good thing to do. Retailers may want to place the most environmentally friendly products (e.g. made of good materials, using long-lasting design) at a prominent place in their shops.

In short, using the marketing mix, convincing consumers of additional benefits of eco-friendly products or behaviour (e.g. not washing my clothing too often keeps them nicer for longer), and educating about issues through the brand (nice-looking products with a convincing story), may be useful strategies for companies to pursue to reduce their ‘product life cycle impact’.

 

Links:

Allwood, J., Ellebæk Laursen, S., Malvido de Rodríguez, C., Bocken, N. 2006. Well dressed? The present and future sustainability of clothing and textiles in the United Kingdom. University of Cambridge, Institute for Manufacturing: http://www.ifm.eng.cam.ac.uk/sustainability/projects/mass/uk_textiles.pdf

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