SUSTAINABLE BUSINESS MODELS FOR ECO-DESIGN AND INNOVATION WHERE DO WE STAND, WHERE DO WE HAVE TO GO?

Dr. Florian Lüdeke-Freund, University of Hamburg EcoSD Research Workshop, 12 March 2015, Paris, France

A simple form of eco-design (?) *

* Given that screens save energy with black instead of white presentations.

Eco-design meets business model imitation?

Cf. Schmidt-Bleek, 2000, Factor 10 Manifesto

The eco-design question

How to create useful artefacts that generate as much utility (and joy) as possible, using the smallest possible amount of natural resources,

including footprints, for the longest possible period of time?

Cf. Boons & Lüdeke-Freund, 2013, Business Models for Sustainable Innovation: State of the Art and Steps Towards a Research Agenda, Journal of Cleaner Production

The business model question

How to market eco-designs and innovations to unfold their full sustainability potential, in ways that allow users to easily adopt them

and allow eco-entrepreneurs to make a business?

Hugo Spowers, 2014, Founder and Chief Engineer of Riversimple Source: http://www.bbc.com

Moving to the business model level

"Disruptive technology can only work if it comes with a new business model.”

SUSTAINABLE BUSINESS MODEL - CONCEPT -

• Business models are “market devices” that can connect sustainability innovations and markets

• Business models combine value propositions, supply chains, customer interfaces, and financial models

• Major contexts for the business model & sustainability innovation nexus

• Organisational innovation

• Social innovation

• Technological innovation

Boons & Lüdeke-Freund, 2013, Business Models for Sustainable Innovation: State of the Art and Steps Towards a Research Agenda, Journal of Cleaner Production

Financial Model

Value Propo-sition

Supply Chain

Customer Interface

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SUSTAINABLE BUSINESS MODEL - CONCEPT -

• Normative requirements of “sustainable business models”

1. The value proposition provides measurable ecological and/or social value in concert with economic value.

2. The supply chain involves suppliers who take responsibility towards their own as well as the focal company’s stakeholders.

3. The customer interface motivates customers to take responsibility for their consumption as well as for the focal company’s stakeholders.

4. The financial model allows a just distribution of costs and benefits among business model stakeholders and includes ecological and social effects.

Boons & Lüdeke-Freund, 2013, Business Models for Sustainable Innovation: State of the Art and Steps Towards a Research Agenda, Journal of Cleaner Production 9

SUSTAINABLE BUSINESS MODEL - WORKING DEFINITION -

A “sustainable business model”, as a “business model for sustainability”,

creates, delivers, and captures value for all its stakeholders,

while it maintains and regenerates the capital bases

of the natural, social, and economic systems it relies on.

Based on Breuer & Lüdeke-Freund, 2014, Normative Innovation for Sustainable Business Models Upward, 2013, Towards an Ontology and Canvas for Strongly Sustainable Business Models

Wells, 2013, Business Models for Sustainability 10

BUSINESS CASES THROUGH BUSINESS MODELS - THE GOAL -

Based on Schaltegger & Burritt, 2005, Corporate Sustainability, in: Folmer et al., International Yearbook of Environmental and Resource Economics 2005/2006

Economic performance

Social and / or ecological performance

Extended business case potential through sustain-

ability innovations and business model effects ES*

ES0

ESP* ESP1

A

B

C F

E

D

ESP0

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SUSTAINABLE BUSINESS MODEL INNOVATION - ARCHETYPES | EXAMPLES -

• Major innovation orientations identified in the literature

Bocken, Short, Rana & Evans, 2014, A Literature and Practice Review to Develop Sustainable Business Model Archetypes, Journal of Cleaner Production

Organisational

1. Repurpose for society and environment 2. Develop scale-up solutions

Social

3. Deliver functionality rather than ownership 4. Adopt a stewardship role 5. Encourage sufficiency

Technological

6. Maximise material and energy efficiency 7. Create value from waste 8. Substitute with renewables and natural processes

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SUSTAINABLE BUSINESS MODEL INNOVATION - ARCHETYPES | EXAMPLES -

• “Develop scale-up solutions” • Delivering sustainable solutions at a large scale to maximise benefits for society

and the environment (e.g. franchising, licensing)

• Expected effects: e.g. large-scale replacement of unsustainable solutions

• “Deliver functionality rather than ownership” • Provision of services that satisfy users’ needs without having to own physical

products (e.g. product-service-systems)

• Expected effects: e.g. decoupling of profits and production volume

• “Maximise material and energy efficiency” • Do more with fewer resources, generating less waste, emissions and pollution

(e.g. lean manufacturing, cleaner production)

• Expected effects: e.g. reduction of waste, emissions, or over-capacities

Bocken, Short, Rana & Evans, 2014, A Literature and Practice Review to Develop Sustainable Business Model Archetypes, Journal of Cleaner Production 13

SUSTAINABLE BUSINESS MODELS - BARRIERS | EXAMPLES -

• Environmental and social externalities

• Capital intensity and long lead time

• The power of incumbents

Wüstenhagen & Boehnke, 2008, Business Models for Sustainable Energy, in: Tukker et al., Perspectives on Radical Changes to Sustainable Consumption and Production

Environmental and social externalities

Capital intensity and long lead time

The power of incumbents

Value proposition

Supply chain Customer interface

Financial model

E.g. emphasis on private customer

benefits

E.g. partnerships, value networks, outsourcing

E.g. leasing, contracting, after-sales

services

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SUSTAINABLE BUSINESS MODEL INNOVATION - TOOLS | EXAMPLES -

“Value Mapping for Sustainable Business

Modelling”

“Flourishing Business Canvas”

“Business Innovation Kit” & “Sustainability Innovation Pack”

Bocken, Short, Rana & Evans, 2013, A Value Mapping Tool for Sustainable Business Modelling http://www.flourishingbusiness.org/

Breuer & Lüdeke-Freund, 2014, Normative Innovation for Sustainable Business Models 15

SUSTAINABLE BUSINESS MODEL INNOVATION - TOOLS | EXAMPLES -

“Value Mapping for Sustainable Business

Modelling”

Bocken, Short, Rana & Evans, 2013, A Value Mapping Tool for Sustainable Business Modelling 16

SUSTAINABLE BUSINESS MODEL INNOVATION - TOOLS | EXAMPLES -

“Flourishing Business Canvas”

http://www.flourishingbusiness.org/ 17

SUSTAINABLE BUSINESS MODEL INNOVATION - TOOLS | EXAMPLES -

“Business Innovation Kit” & “Sustainability Innovation

Pack”

Breuer & Lüdeke-Freund, 2014, Normative Innovation for Sustainable Business Models 18

A SUSTAINABLE BUSINESS MODEL IN THE MAKING - RIVERSIMPLE -

Source: http://riversimple.com (pictures show technology demonstrator, not final product)

Wales-based car designer RIVERSIMPLE founded by Hugo Spowers aims to bring about “mobility at zero cost to the planet”

“Whole system design” + new technology + new business model + new corporate governance

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A SUSTAINABLE BUSINESS MODEL IN THE MAKING - RIVERSIMPLE | TECHNOLOGY -

• Concept car “The Hyrban” • Installed range: 220+ miles (350 km) • Top speed: 50 mph (80 km/h) • Weight: 520 kg • Number of passengers: 2 • Emissions, well-to-wheel: <31g CO2/km

Source: http://www.40fires.org (pictures show technology demonstrator, not final product) 20

A SUSTAINABLE BUSINESS MODEL IN THE MAKING - RIVERSIMPLE | BUSINESS MODEL -

Source: http://riversimple.com, http://www.bbc.com

Financial Model • Start-up: seed / venture capital • Major revenue stream: monthly

leasing fee

Value Proposition • Affordable eco-mobility

• Personal mobility as service • No hassle of ownership

• A car that lasts

Supply Chain • Distributed manufacturing

network with small facilities • Sale-of-service model along

supply chain • Open source approach

Customer Interface • Local provision of cars owned

by Riversimple • Local refuelling network

• Refuelling for free

“Designing a car for this business model requires us to sell performance, not just cars.”

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A SUSTAINABLE BUSINESS MODEL IN THE MAKING - RIVERSIMPLE | GOVERNANCE -

Source: http://riversimple.com 22

A SUSTAINABLE BUSINESS MODEL IN THE MAKING - RIVERSIMPLE | FINDINGS -

• Managed co-development and co-evolution of a whole ecosystem • Technological artefact & infrastructure – Car & local refuelling network

• Business model – Eco-mobility as an all-in service

• Corporate governance – Open and stakeholder inclusive

• Addressing major barriers to sustainable business models • Environmental and social externalities – How to provide zero impact mobility?

→ Offering eco-efficient mobility as hassle-free, all-in, fee-based service

• Capital intensity and long lead time – How to finance RD&D? → Patient capital from purpose-driven seed capital investors

• The power of incumbents – How to overcome path dependence of one century? → Non-exclusive, open source and network approach to create a “movement”

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Cf. Breuer & Lüdeke-Freund, 2014, Normative Innovation for Sustainable Business Models Wüstenhagen & Boehnke, 2008, Business Models for Sustainable Energy, in: Tukker et al., Perspectives on

Radical Changes to Sustainable Consumption and Production

A SUSTAINABLE BUSINESS MODEL IN THE MAKING - RIVERSIMPLE | FINDINGS -

• SBMI archetypes employed in combination (amongst others)

• “Maximise material and energy efficiency”

→ Light-weight construction, high-efficiency fuel cells and engines

• “Deliver functionality rather than ownership”

→ Riversimple owns the car, users pay an all-in fee

• “Develop scale-up solutions”

→ Open source approach, local, replicable production network

cf. Bocken, Short, Rana & Evans, 2014, A Literature and Practice Review to Develop Sustainable Business Model Archetypes, Journal of Cleaner Production 24

WHERE DO WE HAVE TO GO? - FUTURE RESEARCH -

1. Further theoretical and conceptual integration of eco-innovation and SBM → elaboration on (dis-) similarities and overlap of both concepts

2. Understanding business models in their particular contexts → development of a contingent and context-sensitive approach

3. Assessing business models’ sustainability performance → development of frameworks and tools for business model assessment

4. Test and evaluate business modelling tools and their outcomes → identify tools that (do not) work, e.g. in longitudinal studies

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THANK YOU!

More about SBMs on

www.SustainableBusinessModel.org

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LITERATURE

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Bocken, N.; Short, S.; Padmakshi, R. & Evans, S. (2013): A value mapping tool for sustainable business modelling, Corporate Governance: The International Journal of Business in Society, Vol. 13, No. 5, 482–497.

Bocken, N.; Short, S.; Rana, P. & Evans, S. (2014): A literature and practice review to develop sustainable business model archetypes, Journal of Cleaner Production, Vol. 65, 42–56.

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, 9–19.

Breuer, H. & Lüdeke-Freund, F. (2014): Normative Innovation for Sustainable Business Models in Value Networks, in: Huizingh, K.; Conn, S.; Torkkeli, M. & Bitran, I. (Eds.): The Proceedings of XXV ISPIM Conference - Innovation for Sustainable Economy and Society, 8-11 June 2014, Dublin, Ireland.

Schaltegger, S. & Burritt, R. (2005): Corporate Sustainability, in: Folmer, H. & Tietenberg, T. (Eds.): International Yearbook of Environmental and Resource Economics 2005/2006. Cheltenham: Edward Elgar, 185–222.

Schmidt-Bleek, F. (2000): Factor 10 Manifesto, http://www.factor10-institute.org/files/F10_Manifesto_e.pdf Upward, A. (2013): Towards an Ontology and Canvas for Strongly Sustainable Business Models: A Systemic

Design Science Exploration. Masters of Environmental Studies / Graduate Diploma in Business + Environment. Toronto: York University.

Wells, P. (2013): Business Models for Sustainability. Cheltenham: Edward Elgar Publishing. Wüstenhagen, R. & Boehnke, J. (2008): Business models for sustainable energy, in: Tukker, A.; Charter, M.;

Vezzoli, C.; Stø, E. & Andersen, M. M. (Eds.): Perspectives on radical changes to sustainable consumption and production. System Innovation for Sustainability. Sheffield: Greenleaf Publishing, 70–79.

Wysocky, K. (2014): Riversimple, the Welsh dragon that spits water vapour, http://www.bbc.com/autos/story/20141114-riversimple-the-welsh-dragon-that-spits-water-vapour