amazon highlights: RESTART: Sustainable Business Model Innovation / Jorgensen&Pedersen / 2018

Three interwoven trends that we argue drive the development of new business models and that drive the need for sustainable business model innovations: (1) the sustainability problem, (2) digitalization and the technological opportunity space and (3) changing consumer preferences and lifestyles

Briefly put, RESTART is an acronym of seven letters that correspond with seven features of more sustainable business models. They can meaningfully be categorized into three groups of features (“RE”, “STA” and “RT”, respectively), and the framework was designed with these three in mind.

The first category, “RE”—redesign and experimentation—relates to the development that companies are increasingly faced with the need to redesign their business models which in turn necessitates controlled experimentation

The second category, “STA”—service-logic, the circular economy and alliances—reflects three central developments in contemporary business modeling for sustainability: the emphasis on services rather than products (or functionality rather than ownership; on circular business models rather than linear ones and on alliances and collaboration rather than single companies competing in isolation

The third category, “RT”—results and three-dimensionality—relates to the governance and control challenges associated with implementing a sustainable business model, which are crucial for its success

REDESIGN rather than standstill

EXPERIMENTATION rather than turnaround     

SERVICE-LOGIC rather than product-logic    

THE CIRCULAR rather than the linear economy

ALLIANCES rather than solo-runs     

RESULTS rather than indulgences  

THREE-DIMENSIONALITY rather than one-dimensionality

Specifically, we suggest the following propositions about the business models of the future:

…they will require frequent REDESIGN,    

…which necessitates controlled EXPERIMENTATION.      

…and be characterized by SERVICE-LOGIC     

…based on ideas from THE CIRCULAR economy.    

…which will make ALLIANCES even more important,       

…in order to achieve the right RESULTS  

…in a world where the scorecard is THREE-DIMENSIONAL.

More and more companies are trying to make the world more sustainable. But not only that: they are trying to make money while doing so. If companies embrace these opportunities and take on this responsibility, we might be able to achieve the so-called green growth: economic growth while reducing the use of resources and thus the emissions that contribute to a worsening climate. When customers, employees, investors and other stakeholders place greater demands on social and environmental performance, openness and transparency, and expect that products and services are made more sustainable, it becomes less attractive to be the company that cannot live up to those expectations

More and more research shows that sustainability and profitability are possible to align and that improving sustainability performance can even lead to certain types of competitive advantage that are unavailable to businesses that are not sustainable. There is a need for both companies that take responsibility for reducing their negative influence on society and the environment and companies that manage to find profitable ways to exploit the business opportunities that arise because of those problems. Fortunately, we see that both things are happening—although perhaps not quickly enough.

On the one hand, there are companies that take responsibility for their culpability in contributing to the problem and consequently take measures to reduce their negative impact on society and the environment. On the other hand, there are companies that see potential for solving the problem and consequently build business models that enable them to offer profitable products and services that address the footprint made by others.

sustainable business is about creating a harmonious and sustainable interaction between economy, society and the environment in which economic activity strengthens the social and environmental systems they exist within, rather than breaking them down. Recent research in fact suggests that companies that succeed in integrating sustainability into their overall strategies and business models are more profitable in the long term.

The difference is greater for companies that are relatively more exposed to end consumers Business to customer (B2C) than for those who mostly sell to other companies Business to business (B2B). The difference is also greater for companies that compete on brand and reputation, and for companies that are more dependent on using large amounts of natural resources.

Every year, the Global Footprint Network (GFN) announces Earth Overshoot Day (see, e.g., Global Footprint Network 2011). It is the day of the year when we have used all the resources we have available that year if we were to manage our resources sustainably. In 2017, the day fell on 2 August—six days earlier than in 2016, when it was 8 August. Hence, we are moving in the wrong direction with quite some speed. We use a full year’s worth of the earth’s resources during the first eight months of the year, and for the remainder of the year, we borrow all the resources we consume from future generations.

Currently, the Earth’s population is annually using more than 50 percent of its resources and producing more waste, including CO2, than the planet can handle. There are of course huge differences between countries: while it takes just less than four “Italies” to meet Italy’s needs, we need more than 12 “Saudi Arabias” to support Saudi Arabia.

The Stockholm Resilience Center (SRC) has developed a framework that covers nine planetary boundaries that are under pressure (e.g., Rockström et al. 2009). Each year, the center publishes reports in which they attempt to measure the progress in these nine areas. The nine areas together capture the planet’s carrying capacity: Stratospheric ozone depletion, Loss of biosphere integrity, Chemical pollution and the release of novel entities, Climate change, Ocean acidification, Freshwater consumption and the global hydrological cycle, Land system change Nitrogen and phosphorus flows to the biosphere and oceans Atmospheric aerosol loading. One may in fact solve environmental problems by solving social problems and vice versa. The social boundaries are perhaps less tangible than are the planetary boundaries.

Redesign Rather than Standstill

A common denominator of business models is that they reflect how companies create, deliver and capture value from business opportunities

1. Value creation: How the company helps customers to solve a problem or perform a job-to-be-done at a given price (often referred to as the value proposition).

2. Value delivery: The key resources, activities and partners that are needed for the company to carry out what the value proposition requires.

3. Value capture: How the company makes money by means of a given revenue model and a given cost structure.

Successful value propositions have a coherence between what the company offers and what job the customers would like done. Different customers have different needs. Therefore, they really have different jobs they want done. It is important to remember that the costs of the customer are not just a matter of money. It is also about time and effort costs. New or existing companies can identify problems that are not at present resolved in a satisfactory manner.

Value delivery refers to the configuration of the most important resources, activities and partners that are needed in order to deliver and be paid for the value proposition. Simply put, resources are anything the company has, while activities comprise everything the company does. Financial or intellectual—are the inputs required to deliver on what the value proposition promises the customer. It is, however, not enough to possess such resources—the company must use them to perform activities that enable them to deliver value over time. Value delivery thus reflects the strategic and organizational conditions that must be in place for the company being able to create, deliver and capture value over time. In order to deliver value, they need suppliers and partners, whether to provide resources the company itself does not possess or to perform activities it cannot carry out on its own. In this way, partners can unlock new modes of value delivery for the company.

Innovation is not just about new products and services—it also relates to innovation of business models. In other words, changes in the way companies create, deliver and capture value. This means that innovation can occur in connection with all three components of the business model:

First, it may be an innovative value proposition offering new types of value. Second, it may be linked to value delivery, for example, with regard to the innovative use of resources or design of value-adding activities alone or in collaboration with others. Third, it can be linked to value capture, for instance, in the form of innovative payment models or novel revenue streams.

Incremental changes take place gradually, while radical changes entail an abrupt break from existing solutions.

A much-discussed type of radical innovations are the so-called disruptive innovations. This refers to new products or services that deviate radically from existing offerings, typically by being simpler and less expensive

Experimentation Rather than Turnaround

Redesigning a business model is not done overnight, and it is wise not to risk everything on one endeavor. To succeed with business model innovations, companies need to conduct controlled experiments on their business models, in order to uncover what works and why. In that way, they can increase the likelihood that the business model will be successful when it is finally implemented in the entire market.

Experimentation under controlled conditions can provide insight into what works and what does not, and it can reduce the risk of innovation. In innovation circles, it has become a mantra that entrepreneurs should “fail fast”.

If you fail quickly, be sure to fail in a controlled manner. An important type of business model experimentation thus relates to conducting controlled trials that make it possible to assess the impact of planned changes. Most innovations are actually incremental, and not all sustainable business models need to be radical deviations from existing business models. We need various players in the market to experiment together to create this movement—thus creating an ecosystem for innovation. Creating sustainable and profitable business models necessitates experimentation with different customers in different markets and with various ways of delivering and capturing value.

Service-Logic Rather than Product-Logic

Companies conduct services for their customers, whether they do so by means of physical products or not. Sustainable business can be furthered by companies embracing a service-logic across all types of products. This implies thinking in terms of access over ownership, whether we are talking about sharing services, streaming services or leasing-like payment models. By building business models based on service-logic, companies can contribute to improved capacity utilization and less resource waste.

Filippa K’s sharing-economic model for the rental of fashion wear that customers would otherwise have had to purchase. the energy, resources and waste resulting from the production of even more similar objects could have been avoided if we had utilized the objects that already exist more efficiently. This is the point of departure for the sharing economy , which has taken the world by storm in recent years

The new app Tise facilitates the reuse of fashion clothing;

The Circular Rather than the Linear Economy

To become more sustainable, companies need to go from traditional, linear business models based on “take, make and dispose” to circular business models based on reuse, resource efficiency, the sharing economy and closed loops. This can counteract resource depletion, reduce pollution and be a source of cost reductions, new revenue streams and better risk management for companies.

The circular-economic paradigm suggests that there are at least three necessary responses to the problem. First, we need to use resources in a way and to an extent that does not exhaust resource stocks. Second, companies must design products, services and processes in ways that lead to less use of scarce resources and facilitate the reuse thereof.  Third, all products and materials must be maintained at as high a quality level as possible, so that they can actually be reused.

The design of such business models can be done on at least five different levels. As we see from the circles in the figure, companies can rent out their products, which, for example, MUD Jeans and Filippa K do with clothes. They can also offer repair services; they can reuse either parts of or all of the products and resell them; they can refurbish and renew products and they can upcycle resources and materials and thus reuse them instead of extracting new, virgin resources.

currently plastics from the oceans are used to make everything from carpets to shoes. This is also the concept of the Spanish clothing brand Ecoalf, which produces a full range of fashion apparel and bags made from old fishing nets and plastic bottles. Using 235 grams of fishnets, Ecoalf makes one meter of yarn, which in turn is used to produce winter jackets and other products. Ecoalf is not capable on its own to conduct the entire process leading up to this. Therefore, the company has established 18 joint ventures with other companies in order to collect waste, develop yarn and design and distribute its products. Ecoalf and its partners have thus developed a business model that enables the collection of waste and the production of new materials, and thereby novel and innovative ways of designing, producing, distributing and selling fashion clothes. By using circular-economic thinking, Ecoalf and its allies turned the plastic problem into an opportunity. There are numerous business opportunities in the circular economy, and innovative companies can create value by recovering resources that have gone astray and putting them back into productive use.

circular business models build on at least three strategies. First, closing the loop, that is, ensuring a flow of resources from post-use to production of new products. Second, narrowing the loop, that is, ensuring resource efficiency and the use of fewer resources per produced unit. Third, slowing the loop, that is, ensuring longer product lives by designing for longevity.

Big companies are making their own systems in which they design long-lasting products and make money on additional services such as repair, upgrades and refurbishing. Some of these companies are now starting to rent rather than sell products, which implies that they regain access to the products after customers are done with them. Big companies such as Apple, Renault and H&M, for instance, operate in this way. Ecoalf collects plastic waste, such as fishing nets, and uses it as an input factor in their products. In this way, the company also creates jobs for poor people in areas with a large surplus of plastic waste.

Alliances Rather than Solo-runs

To assess the sustainability efforts of companies properly, we must look at entire ecosystems of companies and their collaborative efforts for doing business more sustainably. Arguably, developing such collaborative willingness and competence will be important in trying to design more sustainable business models. Companies that manage to build appropriate value-adding alliances can thereby improve their value capture by getting a slightly smaller piece of a much larger cake. Seeing the company as a coalition of stakeholders involves understanding it as an organism that depends on the support of key stakeholders contributing to its activities and to achieving its objectives.

Results Rather than Indulgences

The important thing is to solve the problems we face—not who does it or what looks good. In order to address the important issues properly, prioritization is key. Simply put, achieving profitability involves increasing revenues, reducing costs or both. By extension, this applies to the relationship between sustainability and profitability. For sustainability efforts to pay off, they must affect the company’s bottom line by influencing revenues and costs directly and/or indirectly. We show various effects of this type. We distinguish between efforts influencing the upside positively and efforts that reduce the downside. Furthermore, we distinguish between efforts that have a direct influence and those that have an indirect influence on the company’s performance.

These four effects—higher revenues, lower costs, increased access to intellectual resources and reduced risk—may perhaps not belong in distinct categories. By differentiating between upside and downside effects, and between direct and indirect effects, it becomes easier for decision makers to see how investments in sustainability may also have effects beyond direct influence in the short term. To assess materiality involves identifying salient social and environmental issues that the company faces and prioritizing them with regard to their importance from economic, social and environmental standpoints. Generally, companies must take great care in addressing material sustainability issues, while they may place less emphasis on those that are less material

The first question is which efforts should be undertaken. The second question is how to know whether the resources allocated to sustainability efforts lead toward attaining the goals set by the company and if stakeholders appreciate the efforts.

First, a company can offer new or improved types of value to its customers, which may lead customers to prefer its products or services. Second, the company can attract resources that would otherwise not have been available to it, such as employees, investors or partners who are attracted by the company’s sustainability profile. Third, the company’s sustainability efforts can render it able to perform value-adding activities that it could otherwise not have carried out, which can be a consequence of attracting new and valuable resources or partners. Fourth, the company can take advantage of opportunities in product markets that otherwise would have been inaccessible, for example, by attaining a position in the market or a reputation that makes the company more competitive. the conclusions depend highly on what is measured and what time horizon is assumed.

What do the drivers of sustainability efforts imply for how to design the efforts? To answer this question, it may be useful to distinguish between “push” and “pull” factors for companies’ investments in sustainability efforts. These factors, respectively, reflect the negative aspects of the current business model, which “push” the company toward more sustainable solutions, and the positive aspects of an alternative, more sustainable business model, which are attractive enough to “pull” the company toward change.

Three-Dimensionality Rather than One-Dimensionality

The bottom line is becoming three-dimensional. To achieve such results, the entire organization must be designed in a way that renders the company able to become sustainable and profitable. This requires setting the right objectives socially, environmentally and financially; it requires measuring and monitoring the right things and communicating them to those who need the information.

Research on companies that manage to combine sustainability and profitability suggests that commitment and anchoring of sustainability efforts at the highest level of the organization are critical to the success of mobilizing and motivating employees to comply with the sustainability vision. To succeed with truly three-dimensional performance, leadership and organizational design must facilitate it. A key challenge for managers is directing employees’ attention toward performance along all three dimensions on which the company is measured. The company must moreover be designed in a way that enables employees to act in accordance with those goals.

four organizational characteristics that are particularly important for promoting simultaneous goal attainment along all three performance dimensions.

1. Assignment of authority and accountability within the organization and placement of suitable competence in the right places in the organization  

2. Contact with stakeholders inside and outside the organization  

3. Development and monitoring of control systems and performance indicators  

4. Development of appropriate incentive structures

Being in touch with stakeholders in this way has an accountability side (“who are affected by the company’s activities, and what does that mean for the company?”) and an opportunity side (“who is able to influence the company’s activities, and what does that imply for the company?”).

Better Dashboard, Better Management

Walk It Like You Talk It

Using incentives to promote sustainability can be very powerful, and research shows that companies performing particularly well with regard to sustainability typically have corresponding financial incentives for managers who are responsible for such outcomes. the company measured these KPIs and tied a significant part of executives’ performance-based pay to the attainment of the sustainability-related goals.

RESTART Before It is Too Late

A Process Model for Sustainable Business Model Innovation

three major trends drive this need for continuous business model innovation: first, the comprehensive sustainability problem, which is both a threat and an opportunity for companies; second, the technological opportunity space related to digitalization and the fourth industrial revolution, which renders old business models obsolete and opens up for completely novel business models, and third, ongoing changes in consumer preferences, lifestyles and consumption patterns that make new types of value creation both possible and necessary

We conceive of The Business Model RESTARTer as a reiterative process model in which we divide the sustainable business model innovation process into four phases

1. Recognize your business model—understanding the status quo and identifying the need for change

2. Rethink your business model—identifying opportunities, threats and possibilities for an improved business model

3. Reinvent your business model—hypothesizing, testing and deciding on a new business model

4. Reorganize your business model—implementing the new business model

These two first phases, recognize and rethink, can be understood as a problem formulation, while the purpose of the two next phases, reinvent and reorganize, is to develop and test new solutions and to integrate them in a new business model.

(1) Recognize your business model

Who are your target customers, what problems do they have, what products and services do you offer them and what is your value proposition to these customers?
How do you deliver value, that is, what are the key resources, activities and partners that allow you to deliver on your value proposition reliably over time?

How do you capture value, that is, what are your most important sources for revenue and cost?  

What are your current ambitions? And what scope and time horizon do you have for growth? 

What are the main negative and positive externalities of your business model?

(2) Rethink your business model

Which jobs do customers really want to have done?  

Which technological and societal trends and drivers influence your business model?
Who are the main players in your industry?  

How can elements from the RESTART framework be an inspiration for sustainable business model innovation?  

Is there a platform for change and a culture for a RESTART in your organization? If not: What are the main obstacles and how can you overcome them?

(3) Reinvent your business model

What are your new ambitions? And what time horizons and scope for growth do you have now?  

Who should your customers be?  

What should your new value proposition(s) be, and how can value be delivered and captured in new ways?  

What needs to be true for the new business model(s) to go to market?  

How can you test and experiment with new business models?

(4) Reorganize your business model

Is there a strong relationship between the new ways of creating, delivering and capturing value in your business model?  

Are you organized to leverage your resources and facilitate value-creating activities?  

Are you counting, incentivizing and communicating the things that really matter?

How are you preparing your business for a new RESTART?

Starting the RESTART

Sustainability efforts are not a one-size-fits-all phenomenon, and the heterogeneity in which sustainability issues are most important and which efforts are best suited to address them is crucial to corporate sustainability efforts in practice.