Create sustainable business models that make an impact.
Business as usual won’t be enough to meet and solve global sustainability challenges and social injustice. Innovation – not only on a technology or product level but on a business model level – will be crucial and become a must for all companies that don’t just view sustainability as a trendy topic but strive for a true sustainable business transformation.
Can sustainable business
model innovation safe the day?
In the past, the business case for corporate sustainability most likely revolved around cost savings, reputation, war for talents, efficiency, risk management and resource efficiency. Today, everyone striving to make an impact has to incorporate sustainability into their brand and corporate strategy and find new ways to turn sustainable innovation not only into a planet-saver but into a value-creator and a competitive market advantage.
According to a Boston Consulting Group (BCG) publication corporations should optimize for both social and business value on a business model level. But instead, many large corporations overemphasize on compliance and the reporting of Environmental, Social and Governance (ESG) metrics – an approach used by stock companies to not only communicate their corporate social responsibility (CSR) efforts but at the same time provide investors with key metrics to quickly analyse the sustainability performance of one's business.
While the focus of ESG reporting is in the disclosure of data explaining a businesses impact and added value in the tree respected area – many corporations fail to see the importance of connecting sustainability metrics to corporate strategy, concrete actions, and further advantage. This seems to be due to the fact that sustainability and societal challenges are still treated separately from core business operations showing little overlaps with the actual value drivers of the core business.
In addition, most reporting relates to company level only – sometimes including parts of the supply chain – but not to the entire business ecosystem or industry and it generally doesn’t include other stakeholders involved. But many sustainability issues such as the fight against climate change or waste reduction, can only be solved if everyone along the value chain acts together for example to implement a real circular economy approach.
To maintain competitive advantage, companies must transform their businesses models for sustainability.
— Boston Consulting Group
So, what can we do to get serious about tackling global sustainability challenges and get this com petitive advantage when business as usual just won’t be enough?
To shed some light on the topic, we've digged a little deeper and come up with some answers to the following key questions:
- What is a sustainable business model innovation (SBMI)?
- Who will benefit from sustainable business model innovation?
- And above all – what is the best way to move forward?
What is sustainable business model innovation?
Sustainable business model innovation is the conception and implementation of sustainable business models. This can comprise the development of entirely new business models, the diversification into additional business models, the acquisition of new business models, or the transformation from one business model to another. (Geissdoerfer et al., 2018)
According to Geissdoerfer a business model innovation is a change in the configuration of the entire business model or individual elements of it. Reasons for companies to choose either way, can range from a reaction to opportunities or challenges in the organization’s environment to being considered as a vehicle for diversification and innovation.
There are four types of business model innovations:
- Start-ups: There is no current business model and a new one is created.
- Business model transformation: There is a current business model that is changed into a new one.
- Business model diversification: The current business model stays in place and an additional business model is created.
- Business model acquisition: An additional business model is identified, acquired and integrated.
Who will benefit from sustainable business model innovation?
In 2016, all UN member states agreed to adopt the 2030 agenda for sustainable development as a blueprint for peace and prosperity for people and planet, now and in future. At its heart there are the 17 UN Social Development Goals (SDGs) which are defined in a list of 169 targets to measure progress towards the chosen goals.
Today the need for real, transformative sustainability is greater than ever before. In addition, the pressure on companies to act is constantly increasing and comes from several sides at the same time: regulators, customers and investors are demanding verifiable sustainability. Not responding, would be a significant risk for most businesses.
We believe, SBM concern us all. Both social and ecological sustainability are not only a matter for future corporate success – they are also critical to the future of humanity and life on earth. To move business forward and create a safe space for humanity and our living planet, we must act together – politicians, citizens and companies alike – and create the right conditions for an ecologically, socially and economically secure future.
What is the best way to move forward?
Time for brand purpose. Get one, if you haven’t got one already.
For companies with serious transformation ambitions, one of the first steps, is often the development of a corporate brand purpose. Your purpose will give your organization a better understanding about a common belief, what you are passionate about and ultimate answer to why you exist.
This makes it clear to all stakeholders involved which general direction your business and brand will take today and in future and inspire everyone to work towards one common goal.
Time to define the project framework and getting started.
In general, managers should think in advance about the intended scope and duration of the project and define which level of risks they are ready to take: Do you want to transform or diversify your current business model? Are you aiming to set new industry standards? Or do you feel courageous and want to explore new terrain?
After clarifying the projects framework and setting a general goal, it is now important to get a holistic understanding of your current business model and your extended business model canvas. You can do so by mapping your existing business ecosystem including all stakeholders involved, identifying sustainable impacts and potentials as well as recognizing trends and challenges. This will allow you to gain a systematic view of your business’s vulnerabilities and opportunities.
Time for people, planet, profit.
Strong strategies respect the 3 pillars of sustainability – social, environmental and economic – or as some call it “people, planet, profit”. Applying methods like design-thinking or system-thinking in the process, will help to better empathize with stakeholders or gain a broader perspective.
While design-led methods such as design-thinking offer a good way to capture the mindset of your audience, identify unmet needs, reduce risks or provide you with valuable insight into your own organization. System-thinking on the other hand, is a great way to analyze patterns and cycles to visualize connections, relationships, and feedback loops. Both approaches work well together as a starting point for further exploration and can help you to come up with innovative new solutions during the ideation process.
The following questions can work as a starting point:
- Who are all the stakeholders in our ecosystem?
- What are their needs, wishes, challenges?
- How do stakeholder or environmental issues impact your business model directly or indirectly?
- Where – and with what – do we have the greatest environmental and social impact?
- Where are our current sustainability limits?
What‘s next?
To take it a little further, there are various procedures and tools which can be applied to develop new value propositions, define value creation and delivery. The innovation process itself is structure in eight iterative phases ranging from ideation, concept design and prototyping through detailed design and piloting to launch and reflection. As innovation is no linear process, you might go back and forth, repeat some stages to react to new threats, challenges or opportunities in your ecosystem.
Time to open up and work together.
Innovation processes often take place behind closed doors – mostly out of fear of losing the competitive advantages. But isn’t competitive advantage a lot about coming up with the better solution than just being the first on the market?
There are several arguments that speak for collaboration, co-creation and open innovation especially in the context of sustainability. All generally lead to an increase in creativity and a cumulation of know-how – two factors of great importance in problem-solving and creation.
At the same time they can increase efficiency and reduce project durations. In the past, open innovation approaches have proven to be successful drivers of innovative solutions at the product, service or business model level. On a SBM level, the open innovation approach can be an important asset to overcome barriers and work as an enhancer of sustainability.
Our conclusion:
Over the next years, regulations to protect our environment and to safeguard our social responsibility will be tightened. Complying with these requirements will be essential to keeping your license to operate. In the meantime, not acting means, gambling away the opportunity to expand and increase brand and business success, reduce risks – and to become more efficient and resilient.
And at the same time, you might miss your chance of becoming one of the sustainability pioneers of the 21st century!
