Topic 2 Archetypes of sustainable business models
Sustainable business models can be organized and grouped into specific archetypes as described in the picture below.
Source: Bocken (2014).
Definition: Do more with fewer resources, generating less waste, emissions and pollution.
In practice:
Lean manufacturing is a well-established philosophy that identifies and seeks to minimise waste in production processes. Waste in this context is not only seen in the physical waste materials and waste energy, but also in over-production, materials handling, over-processing, inventory, defects and rework. The focus of lean has achieved substantial improvements in energy and material efficiencies and productivity improvements. Examples such as the Toyota production system epitomise the integration of lean thinking throughout the business. Cleaner production concepts build on this, and specifically focus on waste and emissions reductions from production processes.
The concept of ‘waste’ is eliminated by turning waste streams into useful and valuable input to other production and making better use of under-utilised capacity. This is the archetype that fits most of the business models operating with circular economy in mind.
In practice:
Industrial symbiosis is a process orientated solution turning waste outputs from one process into feedstock for another process or product. One of the most well-known examples of industrial symbiosis is the industrial park Kalundborg. Closed-loop business models include products and business processes designed in a manner that enables waste at the end of the use phase of a product to be used to create new value. An example of moving towards closed loop business model is the Interface Flor providing office floor carpet tiles.
Under-utilised assets and capabilities as a form of wasted value might be re-captured through sharing – shared ownership, and collaborative consumption approaches. Examples of collaborative consumption approaches being used to radically reduce material throughput are emerging such as peer-to-peer car sharing and local community peer-to-peer electrical power tool sharing schemes.
Reduce environmental impacts and increase business resilience by addressing resource constraints ‘limits to growth’ associated with non-renewable resources and current production systems.
In practice:
- Substitution with renewable (non-finite) resources: This spans options from substitution of finite materials with renewable materials, such as replacing metals with natural and fibre-based materials, through to system-level renewable power generation systems.
- Local renewable energy solutions: This includes solutions such as solar electricity provision in developing markets (e.g., for light, cookers), and using onsite windmills and solar to generate electricity for manufacturing processes.
- Environmentally benign materials and production processes: This is a broad area of innovation from replacing chemical dyes with organic/benign dyes in textile production, through to more radical change such as the emerging field of ‘green chemistry’ that seeks to utilise naturally occurring processes in place of traditional industrial processes.
https://unsplash.com/photos/UAKsks88soU
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Provide services that satisfy users’ needs without having to own physical products.
In practice:
On famous example is the Xerox document management system which is based on customer payment per print or copy, which could dis-incentivise printing. Another example is car sharing (e.g., lease) while maintenance contracts and extended warranties are examples of Product oriented PSS.
Proactively engaging with all stakeholders to ensure their long-term health and well-being.
In practice:
- Upstream stewardship examples include the Marine Stewardship Council (MSC, 2012), the Forestry Stewardship Council (FSC, 2012) and the Better Cotton Initiative. Features of such business models are often a supplier accreditation programme that drives more ethical or sustainable business practices at the grass-roots level (often in developing nations). The programmes might deliver environmental and social sustainability initiatives such as: Employee welfare and living wages, Community development: Education, health, livelihoods; Sustainable growing and harvesting of food and other crops, minimising chemical fertilisers and pesticides, water consumption, and top-soil erosion; Environmental resource and bio-diversity protection and regeneration.
- Downstream stewardship examples include proactively tackling the health issues of consumers. This is particularly relevant in the food, beverage and tobacco sectors, where health issues are arising due to modern diets and over-consumption, combined with increasingly sedentary life-styles.
Solutions that actively seek to reduce consumption and production
In practice:
- Energy Saving Companies (ESCOs) optimise energy consumption of companies and public buildings and in return get paid by part of the savings achieved. In the household energy sector, utility providers are incentivised through subsidies to assist consumers in reducing their energy consumption: both producer and consumer are financially incentivised to reduce consumption.
- Product durability and longevity through product redesign potentially slows product replacement cycles. Furthermore, a change in the culture of fast fashion could significantly reduce excessive consumption and premature disposal of useful products. Companies such as Vitsoe already disassociate themselves with fast fashion but this business model is not yet widespread.
- Market places for second-hand goods create an incentive for owners to take more care of products to ensure higher second-hand value. Second-hand markets in automobiles are well developed, but platforms such as e-bay have extended this significantly. Patagonia clothing for instance, have recently established an e-bay based store to facilitate second-hand clothing trade rather than discarding the products, or leaving them unused in.
- Frugal business models typically focus on provision of products and services to low-income markets, often in extreme poverty.
Prioritizing delivery of social and environmental benefits rather than economic profit (i.e., shareholder value) maximisation, through close integration between the firm and local communities and other stakeholder groups.
In practice:
- Social enterprises: The distinction of social entrepreneurship is in the value proposition itself, or in other words, the core of the business model. Social enterprises exist to fulfil a specific social mission. They are ‘for-profit’ enterprises, but the profit motive is secondary to delivery of the social mission; hence they are not generally profit-maximising.
- Business models for social enterprises must fulfil the following conditions as a minimum: Driven by a social mission, Generate positive externalities (spill overs) for society; Recognise the centrality of the entrepreneurial function; Achieve competitiveness on markets through effective planning and management.
Delivering sustainable solutions at a large scale to maximise benefits for society and the environment.
In practice:
Collaborative models to rapidly scale up include peer-to-peer models, crowd-sourcing and open innovation. These all seek to bring like-minded individuals, firms, and investors, together to drive adoption of business ideas and have the potential to radically change consumption patterns across the world, and radically influence production models. The Internet is proving to be a powerful enabler of such new innovative scale up approaches
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