The companies who can create truly sustainable businesses will remain competitive in the future.
Today most companies don’t address the basic sustainability dilemma related to their business models and industries they are operating in. Corporate sustainability activities are still mainly concentrating on enhancing existing operations, such as minimizing energy and raw material consumption and production of waste and effluents as well as enhancing positive impacts on the society. To become truly sustainable, companies need a more fundamental approach that rethinks the whole business idea and business model to drive sustainability in the core understanding the new kinds of business opportunities related to that.
The difficulty of becoming a sustainable business
Today manufacturing companies base their businesses on linear models meaning that they take natural resources, produce products out of them, products are consumed or used and after all disposed when they become obsolete. These companies face the dilemma how to transfer their existing linear business models to become truly sustainable.
To clarify the sustainability dilemma, here are two examples of companies that might optimize their operations for sustainability but struggle to address the core dilemma by doing so:
• A company mass-producing products is always problematic from the environmental perspective as its goal is to sell as many products as possible at a low price. Even though it may enhance its processes so that the environmental impacts per product is minimized its business model does not support a broader sustainability goal.
• If a company’s business is based on utilizing nonrenewable resources, it may be difficult to make a change to become truly sustainable as the product and industry itself conflicts with the sustainability goals.
Sustainable business model design
To maximize impact and outcomes, sustainability aspects should be integrated to all corporate decision-making, starting from the development of the business idea and business model. These considerations should be an integral part of the strategic planning. Truly sustainable business models consider that the business is not only economically but also socially and environmentally viable.
Depending on industry, that could mean adapting circular economy principles in planning of future operations, products and services. The most conventional strategy is to use fewer raw materials in the production and to increase the energy-efficiency of products. In many cases this is not sufficient and more comprehensive strategies are needed. These can be based, for instance, on innovative service models related to maintenance, repair, refurbishing, re-manufacturing, product reuse or product-as-a-service models with focus on creating entirely new kind of value for customers.
For example, Bugaboo piloted a leasing program ‘Flex plan’ of their strollers and Philips together with Turntoo developed a “light as a service” business model where Philips retains control over the items they produce, enabling better maintenance, reconditioning and recovery.
A way forward
Changing a business model is not an easy task and requires lots of effort which is why many companies are struggling with how to start. To make the change easier, companies can start taking small steps. This can be done, for instance, through involving stakeholders in co-creation of new ideas and solutions. In addition, companies can start experimenting and testing hypotheses with low effort and cost instead of having to start large-scale piloting activities. Digital technologies can play a critical role in enabling new circular business models and in facilitating rapid experiments and co-creation across company boundaries.
How to get started?
Our advice to companies interested to take first small-scale steps in changing their business to a truly sustainable one:
– Utilize co-creation across organizational borders in the development of ideas. Share your ideas, use the power of the crowd and be ready to modify the initial ideas.
– Avoid trying to solve complex problems at once, simplify and split them into better manageable issues.
– Start with small-scale, low-effort experiments, features can be added later. Adapt an iterative process: be ready to fail and start again with new experiments.
– Understand the business case: a circular economy solution should create value-add for the customers compared to a traditional way of fulfilling their needs. Such value-add might be different compared to the traditional solution.
– It is acceptable to copy existing solutions and to do the same thing in a better way or to combine parts of different existing solutions/ideas – don’t re-invent the wheel.
– Digital tools are enablers, business innovation drives the value – Don’t go technology first!
– Understand the value chain/network and the ecosystem and your role within it.
To change a company’s direction to be truly sustainable requires that the business model is designed from a new basis. The solution is to rethink how to create value simultaneously to customers, environment and the society in a totally different way. Take a look how a waste-treatment center turned into a platform for open innovation.