[Note: This is the 12th post in our “Papers in Brief” series. This series offers a special service as it explains the core ideas of chosen research papers in a nutshell.]

Papers in Brief (XII) by Boukje Huijben

Huijben, J.; Verbong, G. & Podoynitsyna, K. (2016): Mainstreaming solar: Stretching the regulatory regime through business model innovation, Environmental Innovation and Societal Transitions, Vol. 20, pp. 1–15, http://dx.doi.org/10.1016/j.eist.2015.12.002.

This paper addresses the important question of how sustainable business model design is being affected by governmental policies in place. We integrate insights from both transition studies and business model literature to answer this question and use empirical evidence from the Dutch and Flemish solar energy markets to substantiate our argumentation. We define the regulatory regime affecting business model design in emerging niches as consisting of both mainstream regulations (e.g. for the energy or construction markets) as well as niche supporting schemes (e.g. subsidies) and their related regulations. The regulatory regime defines the boundaries of the business model design space, which encompasses all the legal business model design options available to niche entrepreneurs.

The regulatory regime influences the business model design space with different components of the business model being affected in both positive and negative ways (Figure 1).

Figure 1: The shaping effect of the regulatory regime on the niche business model design space. The level of niche shielding in the form of financial support is positively impacting the Profit Equation (1), while mainstream regulations may result in direct extra costs, negatively impacting the Profit Equation (2) (black arrows), thereby opening up or limiting the business model design space (3). Regulations for niche shielding (4) and mainstream regulations (5) together define business model design options, thereby setting boundaries for the niche business model design space and indirectly impacting the Profit Equation (6).

However, the reactions of entrepreneurs to these influences differed. Niche entrepreneurs could either fit to existing regulations or tried to push the boundaries of what is allowed (stretch) in order to enlarge the business model design space (Smith and Raven, 2012) (Figure 2). We found that these strategies also differed in terms of their temporal orientation (i.e. present versus future oriented strategies), degree of business model innovation and which dimension of the niche shielding instrument was stretched: either width or depth of shielding. While width relates to the targeted sector for shielding, depth relates to the level of shielding provided (Boon and Bakker, 2015). Depending on the particular strategy chosen various components of the business model design were adapted. Stretch strategies and related business model designs are more risky by nature, but in the long run they can also result in structural changes to the regulatory regime in place and wider up-scaling and mainstreaming of sustainability innovations within niches.

Figure 2: Summary of main findings: I—effect is consistent with pure fit and confirm strategy; II—effect occurs only when stretch and transform is being enacted; III—highlights the optional choice of entrepreneurs for stretch and transform (as opposed to fit and conform). While II is optional, I is likely to be always present in various degrees.

If you have any questions or remarks, please feel free to contact us at b.huijben@tue.nl

References

Boon, W. & Bakker, S. (2016): Learning to shield – Policy learning in socio-technical transitions, Environmental Innovation and Societal Transitions, Vol. 18, pp. 181-200, http://dx.doi.org/10.1016/j.eist.2015.06.003.

Smith, A. & Raven, R. (2012): What is protective space? Reconsidering niches in transitions to sustainability is protective space? Reconsidering niches in transitions to sustainability, Research Policy, Vol. 41, No. 6, 1025–1036, http://dx.doi.org/10.1016/j.respol.2011.12.012.