[Note: This is the 29th 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 (XXIX) by Nancy Bocken and Thijs Geradts

Bocken, N. M. P., & Geradts, T. H. J. (2019), “Barriers and drivers to sustainable business model innovation: Organization design and dynamic capabilities”, Long Range Planning, 101950. DOI: https://doi.org/10.1016/j.lrp.2019.101950 [Open Access]

Background and relevance

Sustainable business model innovation (SBMI) in large multinational corporations is increasingly seen as a key driver for competitive advantage and corporate sustainability. SBMI includes a broader notion of value than conventional business model innovation: from mainly economic to also include social and environmental value; and from a customer and shareholder focus to a multi-stakeholder perspective, also including societal stakeholders (Bocken et al., 2013; Lüdeke-Freund et al., 2016).

While ordinary capabilities as repeatable patterns of action allow multinational corporations to operate their current business model at a higher level, dynamic capabilities of sensing (identifying and assessing opportunities), seizing (mobilizing resources to address opportunities and capture value), and transforming (continued renewal of the organization) enable corporations to adjust, recombine and create ordinary capabilities (Teece, 2018). Corporations require strong dynamic capabilities to innovate their business models, but the role of organization design to nurture such dynamic capabilities has been insufficiently investigated.

By taking a qualitative research approach, we address how organization design affects dynamic capabilities needed for SBMI. Based on this, we identify barriers and drivers on three levels: the institutional, the strategic, and the operational. First, we contribute to a recent discussion on how organizational design affects dynamic capabilities needed for business model innovation. Second, we present a framework to show how interconnected barriers and drivers obstruct or enable SBMI. Third, our study answers a call to advance theoretical perspectives on SBMI. Fourth and finally, we offer practical insights into barriers and potential drivers for SBMI, based on a comprehensive study of multinational corporations, regarded as sustainability leaders.

Research method

The organization design to nurture dynamic capabilities, important for (S)BMI, remains scantly addressed (Fjeldstad and Snow, 2018). In this study, we investigate factors within organization design that influence the development of dynamic capabilities needed for SBMI in multinational corporations. We adopt a qualitative research approach to reveal SBMI barriers and drivers by drawing on 53 semi-structured interviews with top, senior and mid-level managers involved in SBMI in six large multinational corporations: AkzoNobel, Interface, Johnson & Johnson, Pearson, Philips, and Unilever. We based our selection of corporations on their position in two sustainability indexes—the GlobeScan/SustainAbility Survey and the Dow Jones Sustainability Index. In total, 59 SBMI initiatives were investigated. To get a holistic understanding of how organization design affects dynamic capabilities needed for SBMI, we interviewed top and senior managers who sponsored the development of SBMI initiatives inside their respective organizations. We also interviewed senior and mid-level managers with different functional backgrounds (e.g. R&D, marketing) who were identified by their superiors or peers as champions or supporters of SBMI initiatives. We coded the interview data (Figure 1) to develop a comprehensive overview of barriers and drivers to SBMI (Figure 2).

Figure 1. Data structure: how data from interviews led to barriers and drivers at the three levels.

Results

Our analysis revealed organizational design factors at an institutional, strategic and operational level that inhibit or enable those dynamic capabilities for SBMI. Figure 2 shows the overview. It should be noted that these co-exist rather than directly counter-act one another. It was also found that both barriers and drivers ‘trickle down’ and thus influence each other. For example, the purpose and objectives of corporations to maximize shareholder value trickle down to institutional, strategic, and operational barriers. Next an overview of the barriers and drivers is given.

Institutional barriers are concerned with well-established rules, norms, and beliefs that describe the reality for the organization and guide behaviour accordingly. It was found that a focus on maximizing shareholder value fosters uncertainty avoidance and short-termism.  Strategic barriers relate to actions that contribute to core organizational objectives and shape the long-term direction of a firm. We identified an emphasis on functional strategy, a dominant focus on exploitation, and prioritizing short-term growth as key strategic barriers. Operational barriers are caused by practices that support strategic actions that contribute to core organizational objectives. Operational barriers include functional excellence, standardized innovation processes and procedures, fixed resource planning and allocation, short-term oriented incentive systems, and financial performance metrics.

Institutional drivers counteract institutional barriers: it was found that a balanced approach to shareholder and stakeholder value at the institutional level fosters a willingness to embrace ambiguity and valuing of business sustainability. Strategic drivers enable sensing, seizing, and transforming for the purpose of SBMI and provided a counterweight to strategic barriers. Strategic drivers include an emphasis on collaborative innovation, a strategic focus on SBMI, and patient investments. Operational drivers include people capability development, an enabling innovation structure, ring-fenced resources for SBMI, an incentive scheme for sustainability, and performance metrics for sustainability.

Figure 2. Barriers and drivers to sensing, seizing and transforming for SBMI

By identifying factors at the institutional, strategic and operational levels that hinder and enable sensing, seizing, and transforming for SBMI, this study gives insight into the organizational design conducive for dynamic capabilities to effectuate SBMI. In the paper, we also provide further examples and quotes from top, senior and middle management involved in SBMI at AkzoNobel, Interface, Johnson & Johnson, Pearson, Philips, and Unilever. Through this research, we aim to advance theoretical perspectives on SBMI (Dentchev et al., 2018) and provide guidance to corporate management on how to innovate business models towards greater sustainability. Overall, this study contributes to emergent theory and practice of how multinational corporations can fulfil their growing commitments to deliver societal value alongside profit.

References

Bocken, N., Short, S., Rana, P. and Evans, S., (2013), “A value mapping tool for sustainable business modelling”, Corporate Governance, Vol. 13 (5), pp. 482 – 497.

Dentchev, N., Rauter, R., Jóhannsdóttir, L., Snihur, Y., Rosano, M., Baumgartner, R., Nyberg, T., Tang, X., van Hoof, B. and Jonker, J., (2018), “Embracing the variety of sustainable business models: A prolific field of research and a future research agenda”, Journal of cleaner production, Vol. 194, pp. 695-703.

Fjeldstad, Ø.D. and Snow, C.C., (2018), “Business models and organization design”, Long Range Planning, Vol. 51(1), pp.32-39.

Lüdeke-Freund, F., Massa, L., Bocken, N., Brent, A., & Musango, J. (2016). Business Models for Shared Value: How Sustainability-Oriented Business Models Contribute to Business Success and Societal Progress. Cape Town: Network for Business Sustainability South Africa

Teece, D.J., (2018), “Business models and dynamic capabilities”, Long Range Planning, Vol. 51(1), pp.40-49.