[Note: This is the second post of our new “Papers in Brief” series. Posts published in this series provide a special service as they explain the core ideas of chosen research papers in a nutshell.]

Papers in Brief (II) by A. Idil Gaziulusoy

Gaziulusoy, I. & Twomey, P. (2014): Emerging Approaches in Business Model Innovation Relevant to Sustainability and Low-carbon Transitions. Melbourne: University of Melbourne.
PDF

We started an exciting four-year project in September 2013 aiming to develop visions, scenarios and pathways for resilient and low-carbon urban futures in Australia. In the first few months after the project kick-off we carried out exploratory research to investigate areas relevant to low-carbon transitions and compiled our findings in a series of working papers. In one of these working papers my colleague Paul Twomey and I focus on business models. In this working paper we provide a review of new and emerging approaches used in development of new business models which might assist in the realisation and diffusion of technological, social and organisational innovations necessary for sustainability and low-carbon transitions. We also explore some of the limitations of the current conceptualisation of business models and suggest new areas of refinement of these tools to overcome some of the narrowness of current sustainable business model thinking. Here’s a summary of the working paper which can be downloaded in full from the VP2040 project website.

Business models consist of several components, which together establish the conceptual architecture of businesses. Although these components are referred to using a variety of terms in the literature, fundamentally business models need to articulate value proposition, target customer, distribution channels, customer relationships, arrangement of activities and resources, core competencies, partner network, cost structure and revenue model. Any novel approach used to develop and/or connect one or more of these components can be defined as business model innovation.

We identified nine different approaches used in development of business models that are of relevance for creating greater sustainability. These are:

• Product service systems: where consumer pays for the services provided by a product rather than buying the product itself. Companies therefore take responsibility for the lifecycle of product including repair, replacement and disposal.
• Open innovation: where company co-operates with other organisations, groups of people or individuals to generate new ideas and commercialize them. Such collaboration is particularly appropriate for dealing with the complex interdependencies that characterise the transition to a more sustainable built environment.
• Peer-to-peer innovation: innovation rising from cooperation of loosely connected, widely distributed individuals (i.e. peer-to-peer networks) through sharing open-source resources and distributed production capabilities.
• Closed-loop production: where materials used to create a product are recycled through the production process; often characterised as “cradle to cradle” production or “industrial symbiosis”.
• Crowdfunding: offers a new source of funding for niche innovation as well as attracting social media attention; frequently taps into social and community development concerns.
• Sharing economy: where participatory sharing schemes allow access to resources when needed and enable a more efficient use of resources that might otherwise sit idle.
• Social Enterprises and Benefit Corporations: where companies, through participation in certification schemes or under new corporate forms, becomes legally obliged to pursue social and environmental value in addition to financial (shareholder) value.
• Gift economy: uses voluntary donations such as ‘pay as you feel’ and taps into concerns for social sustainability.
• New manufacturing paradigm: powered by new capabilities associated with additive manufacturing (i.e. 3D printing), business models that aim to generate greater efficiency in production, enable rapid prototyping therefore enable faster development and diffusion of new offerings and support peer-to-peer innovation (i.e. makers movement).

To more systematically explore the qualities and principles that underlie these different sustainable business models, two recent frameworks provided us some useful insights:

• Boons and Lüdeke-Freund (2013) identify four fundamental parts of a generic business model, each of which can be a source of greater sustainability: (i) providing a value proposition with measurable and balanced ecological, sociological and economic value, (ii) adopting a more sustainable supply chain, (iii) developing a customer interface that motivates customers to take responsibility for their consumption, and (iv) using a financial model that reflects the appropriate distribution of costs and benefits among actors involved and should account for ecological and social impacts.
• Wells (2013) identifies six major principles which underpin business models for sustainability: resource efficiency, social relevance, localization and engagement, longevity, ethical sourcing and work enrichment.

Given sustainability issues are complex and cut across several economic, social and natural systems, it is difficult to assess the sustainability of any business model against the above qualities and principles without considering the properties of the wider system within which the new business will be positioned. Accordingly, incorporation of structural and cultural considerations into sustainable business models may be suggested as well as encouraging companies to take active roles by collaborating with key stakeholders in building more sustainable capabilities within the systems they are part of.

Refinement of the current conceptualisation of sustainable business models may also be required as business modelling may be useful for any enterprise that is offering a sustainable product or service, regardless of whether it is a for-profit business or not.

Literature

Boons, F. & Lüdeke-Freund, F. (2013): Business Models for Sustainable Innovation: State-of-the-Art and Steps towards a Research Agenda, Journal of Cleaner Production, Vol. 45, pp. 9-19.
DOI | PDF (SSRN)

Wells, P. (2013): Business Models for Sustainability. Cheltenham: Edward Elgar Publishing.
Link