Innovating a business model goes beyond product, service and/or technological innovation, or changes in single-function strategies such as the sales model. Through business model innovation, several elements of a business model are changed, allowing value to be delivered in new ways. When companies innovate for sustainable business models, sustainability issues and goals are incorporated into the design of the business model.
Sustainability efforts have led to many improvements in recent years. However, most efforts have been focused on incremental innovations, such as efficiency improvements in supply chains or more sustainable products. When we consider today’s global sustainability challenges, it becomes clear that incremental improvements are not enough. Our planet also needs disruptive transformation, which means the creation of entirely new business models.
The aim of business model innovation from a sustainable perspective is to drastically reduce the resources and material input needed in sector value chains. In some cases, it will result in the replacement of unsustainable business models. Ideally, new business models will deliver positive social and ecological effects. For example, new models can follow the principles of sufficiency and/or circular economy. Sufficiency covers reductionist strategies, such as consuming and producing less and slowing down. Circular economy is based on closed-loop systems, repairing, and sharing.
According to research, the following business model innovations have been particularly successful:
Environmental impact: Closed-loop production, physical to virtual, produce on demand, rematerialization.
Base of the pyramid: Building a marketplace, differential pricing, microfinance, micro-franchise.
Financing innovation: Crowdfunding, freemium, innovative product financing, pay for success, subscription model.
Diverse impact: Alternative marketplace, behavior change, product as a service, shared resource.
Of these, the following are particularly relevant for aim of developing and fostering more sustainable markets:
Product as a service – Renting instead of selling products.
Physical to virtual – Replacing physical infrastructure such as retail store with virtual services.
Produce on demand – Producing products only when customer demand has been qualified, thereby minimizing waste.
Re-materialization – Sourcing materials from recovered waste.
The secret formula consists of how to apply and combine any of those business model innovations within parts or in the entire components of a business model:
- Value Proposition: Who are your customers? What is or will be your offering?
- Value Chain: How will you deliver your offering to customers?
- Revenue Model: Why do customers should acquire your products or services? How will you monetize that offering?
We believe that collaboration leads to more successful innovation. Bringing different opinions and points of view into the innovation process broadens the range of ideas, know-how and critical voices. This process can be successful only if it has the customer as the center of it, and not only in terms of how your products and services will help to fulfill needs or solve challenges; and step forward is to also consider the needs, challenges, and requirements of your customer’s customer. There is where the real Value Creation & Delivery resides.
Some determinant definitions that must be clear in the Business Model Innovation process:
Customer: The customer is the decision-maker and project owner and is internally accountable for the outcome of the process. Furthermore, the customer is the industry expert and can leverage existing internal know-how, capabilities, and skills.
Customer’s customer: Following a human-centered approach, new business models must provide additional value to the customers they target. The customer’s customer has the role of validating of disproving assumptions and features of the new business model.
Are you working to create a sustainable business?
Are you applying business model innovation?
Are you considering your customer and your customer’s customers when creating your sustainable business model?
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