Sustainable business model innovation – why is it important?
Sustainable business model innovation matters now more than ever before.
The world is constantly changing. With those changes come new, very real challenges and new consumer perspectives that demand new business models.
Customer demand for sustainability is increasing
Innovating how you do business to become more sustainable demonstrates strong values and high integrity. In many cases it also serves your customers better. Nielsen studies show that 66% of consumers would spend more for a product if it came from a sustainable brand. 81% of global consumers feel strongly that companies should help improve the environment.
The consumer trend for expecting sustainability from business’ value propositions is growing, especially as the number of millennials and generation Z increases.
United Nations Sustainable Development Goals
The United Nations’ 17 Sustainable Development Goals (SDGs) are defined as follows:
…an urgent call for action by all countries – developed and developing – in a global partnership. They recognize that ending poverty and other deprivations must go hand-in-hand with strategies that improve health and education, reduce inequality, and spur economic growth – all while tackling climate change and working to preserve our oceans and forests.https://sdgs.un.org/goals
According to a report by Global Reporting, 40% of companies they surveyed from around the world set measurable commitments for how they will help achieve the 17 United Nations Sustainable Development Goals, while 20% include evidence to assess their positive impacts.
More and more businesses are committing to Net Zero targets
In June 2019, the UK Government committed to reducing the UK’s net greenhouse gas emissions by at least 100% by 2050, compared to 1990 levels. This target is known as net zero, and milestones towards moving to a net zero emissions economy are now set down in UK law. (Source: British Business Bank)
As the Harvard Business Review headline states: Sustainable Business Went Mainstream in 2021. Future research shows that the trend is not only set to continue, but accelerate, despite the macroeconomic and political shifts of 2023 and beyond.
Examples of businesses committing to Net Zero targets
- Apple commits to be 100 percent carbon neutral for its supply chain and products by 2030.
- Port of Tyne commits to becoming net zero by 2030, and an all-electric port by 2040.
- Ørsted is making renewables a force for positive change – going far beyond delivering zero-emissions energy.
- Nissan Motor aims to eliminate carbon dioxide emissions from global manufacturing sites by 2050, switching to all-electric equipment powered by environmentally friendly sources.
- Ecopetrol is Colombia’s largest company. It was the first company in the Oil and Gas industry in Latin America to set the goal of achieving net-zero carbon emissions by 20
- Unilever is partnering with its suppliers to achieve a net zero supply chain by 2039
Sustainable business model innovation creates financial benefits
A study by McKinsey found a significant correlation between a company’s resource efficiency and the strength of its financial performance. It also found that reducing resource costs can improve operating profits by up to 60 percent. As an example, McKinsey cites FedEx. FedEx is in the process of converting all of its 35,000-vehicle fleet to electric or hybrid engines. So far it has converted 20 percent of vehicles, leading to a reduction in fuel consumption of more than 50 million gallons already.
Sustainability attracts and retains talent
Just as the customer demand for sustainable business is growing, so is that of employees. Job attractiveness, satisfaction, employee loyalty and productivity increase when people feel that they are part of contributing to the greater good. A sense of purpose is important.
Research published in Decade of Disruption: Future of the Sustainable Workplace in the Age of Covid-19 and Climate Change shows that:
- 72% of multigenerational respondents stated that they were concerned about environmental ethics
- 83% of workers reported that their workplaces were not doing enough to address climate change
- Almost two-thirds (65%) of respondents said that they were more likely to work for a company with strong environmental policies
- Climate change, human rights and social equity are all becoming more and more important, especially for millennial employees, who now make up the majority of the workforce
Sustainable business model innovation creates new opportunities
As different industry sectors across the world tackle issues such as how to decarbonize their operations, new opportunities are created for supply chain innovations.
Sustainability goals drive innovation, which generates opportunities to grow and build business resilience.
Definition of business sustainability
In business, sustainability refers to doing business either without negatively impacting the environment, community, or society as a whole, or in ways that help to restore better conditions that existed previously.
Sustainability in business generally addresses two key areas:
- The effect business has on people
- The effect business has on the environment
What is a sustainable business model?
A sustainable business model is a company’s plan for making a profit sustainably, i.e. protecting people and the environment. It identifies the products or services the business sells, its target customers and the associated costs, supply and distribution chain.
The purpose of innovating a sustainable business model is to make a positive impact on people and the environment.
Businesses with a sustainable business model consider a wide range of environmental, economic, and social factors across their business operations, and when making business decisions. These businesses monitor the impact of their operations to ensure that their short-term decision-making also benefits long-term goals for resilience and sustainability.
What is business innovation?
Business innovation isn’t just about technology. It also includes new product development, service experience, employee culture, communications, business processes and much more.
What is sustainable business model innovation?
Sustainable business model innovation means creating, or reimagining, a new and improved plan for making a profit whilst protecting people and the environment. It means challenging and innovating the products or services the business sells, its processes, collaborations and inputs such as energy, raw materials and supply chain set-up to achieve better. more sustainable outcomes, whilst making profit and delighting customers.
The purpose of innovating a sustainable business model is to make a positive impact on people and the environment.
Eco-innovation is business innovation that has the purpose of reducing or eliminating harm to the environment, or of helping to restore positive environmental conditions. Sustainable business model innovation includes using eco-innovation principles, as well as focusing on protecting and supporting people.
How can businesses be more sustainable?
It’s essential to build sustainability into the DNA of your business innovation strategy from the outset. The ways in which businesses can become more sustainable range from making small changes and substitutions, such as installing LED lighting throughout its business operations, to leading-edge research and development into inventive solutions, like BioTech Fashion. BioTech Fashion processes textile waste using their low-energy technology, and transforms the waste into new, sustainable materials.
Research by Goni et al. (2020) recommends that the key aspects for businesses to consider for greater sustainability are information technology, circular economy, value chain, core values, value creation, organisational values, performance management, and stakeholder engagement.
Circular business models are designed to retain products and materials in use for as long as possible to get the maximum value from them. Reuse, recycling, repurposing and sustainable disposal of products, process outputs and materials used in the value chain are considered from the outset as being core to the organisation’s value chain. A great example of a circular business model driven by sustainability is the outdoor clothing brand, Patagonia. Production is from recycled items – such as fishing nets – and innovative, sustainable new materials. Their website prominently features Patagonia’s activism on postive impact on the earth and climate change.
How to build a sustainable business model
To build a sustainable business model, take the following steps, involving your team and stakeholders throughout.
Step 1: Deconstruct your products and services
Deconstruct your products and services to spot ways in which you could improve them for better sustainability.
Challenge yourself with the question: “How might we redesign this product or service from scratch to achieve equal (or better) performance, and make it wholly sustainable?”
You might not achieve a solution that is 100% sustainable, but if the improvement is significant, it could still be worth making the changes.
If you do make changes for improved sustainability, remember to test them and communicate them clearly to your target customers.
Of course, you will also need to re-run your cost and pricing models, too, to make sure that you protect your profitability.
Step 2: Walk through your business processes
Once you have optimized your products or services for sustainability, the next step is to design business processes that will create and distribute them to customers as sustainably as possible.
Walk through your business processes and map out in visual form what happens when, and what the inputs are.
Spot your most problematic or unsustainable inputs and waste-generators, and start with those, as they are likely to give you the greatest return. But also be on the look out for quick wins, such as an opportunity to reduce mileage, use less water, move to a green energy tariff and so on.
Examine your supply chain. How sustainable are their business practices? Start with the ones you buy the most from, in volume and dollars, and work through the list in descending order of impact. Work in partnership with your key suppliers, or even find new ones to support you in your sustainable business model innovation.
Step 3: Focus on People
You’ve been involving your team throughout steps 1 and 2. Step 3 is about focusing on people specifically to identify the people skills, resources, roles, training and culture you need to make your new sustainable business model innovation a reality, becoming business-as-usual over time.
You’ll need people with the right skills and motivation to make the change happen, and get new ways of working set up. It will also be necessary to train people to run the new operational processes well, making the most of their skills and building their confidence and engagement in your new business model.
Step 4: Use data for continuous improvement
Establish Key Performance Indicators (KPIs) upfront, and use data to track your progress. Once you’ve embedded a layer of change, move to the next one. Adopt the mindset of achieving continuous sustainability improvement. Role model that mindset to your team.
Here’s a really in-depth guide on how to design and lead a business sustainability workshop for your team.
Sustainable business model innovation examples
In principle, any traditional business model can be innovated to become sustainable, using the four steps, involving your team and stakeholders throughout:
- Deconstruct your products and services
- Walk through your business processes
- Focus on people
- Use data for continuous improvement
Just a few examples of sustainable business model innovation are:
- Starting in 2019, SoftBank created and launched their Emerge Accelerator, first in the US and then in Europe to better support early stage founders. They worked hard to engage founders from under-represented parts of the community, developing a new funding model as a result. Softbank’s Emerge Accelerator now promotes diversity in tech and entrepreneurship by partnering underrepresented founders with the capital, tools, and network they need to scale their business.
- Sustainovate is Husqvarna’s strategic, sustainable business model approach that brings people and nature closer together. The business is transitioning to low-carbon solutions in each element of their products’ lifecycle, in ways that benefit customers and are profitable. Battery technology and robotics are important parts of the solution. Husqvarna works closely with their suppliers and on leaner manufacturing and smarter product design to stop hundreds of thousands of tons of CO2 from entering the atmosphere every year.
- Karma Drinks in New Zealand is an ethical, sustainable challenger to global soft drinks brands. The name ‘karma’ came from an idea the founders had about forming a company to find ingredients that were good for the land, good for the people who grow them and good for the people consume them. 1% of revenue from every Karma Drink goes to the company’s cola nut growers and their communities in Sierra Leone to support economic and social independence.
Sustainable business model patterns
Prof. Florian Lüdeke-Freund et al.’s book, Patterns to help design businesses that create sustainable value (2022), provides a comprehensive overview of 45 patterns for the design of next generation business models for sustainability.
These patterns provide templates or springboards for more sustainable business strategy, applicable to public sector, commercial organisations and social enterprises. These templates support greener value chain delivery and corporate sustainability.
Sustainable business model archetypes
Sustainable business model archetypes are groupings of approaches and solutions designed to improve sustainability.
Environment-centred archetypes include:
- Lower content for products and packaging
- LEAN manufacturing principles
- Low-carbon manufacturing
- Increased functionality of products
- Moving from non-renewable to renewable energy sources
- Local energy solutions.
Socially responsible archetype examples are:
- Consumer education
- Demand management
- Product durability and longevity, e.g. durable outdoor clothing designed to last, such as Patagonia
- Market places for second hand goods, e.g. eBay, clothing swaps
- Responsible product distribution/ promotion,
Sustainable business model innovation consulting
All of our team here at the Big Bang Partnership are passionate about helping you to design a more sustainable business model for your organization.
We work with companies, social enterprises and public bodies around the world to help them think differently to innovate for profitable growth responsibly and sustainably.
If you’d like to learn more about our eco-innovation and sustainable business model innovation consulting services, please do get in touch. We’d love to hear from you, and will be pleased to have a virtual coffee and complimentary chat to explore your ideas and plans.