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Abstract

A considerable body of literature deals with the creation of economic value while increasing corporate environmental and social performance. Some publications even focus on the business case for sustainability which aims at increasing corporate economic value through environmental or social measures. The existence of a business case for sustainability is, however, mostly seen as an ad hoc measure, a supplement to the core business, or simply a coincidence. As a contrast, this paper argues that business model innovations may be required to support a systematic, ongoing creation of business cases for sustainability. A framework for business model innovation is proposed as a means to strategically create business cases on a regular basis as an inherent, deeply integrated element of business activities.
Int. J. Innovation and Sustainable Development, Vol. 6, No. 2, 2012 95
Copyright © 2012 Inderscience Enterprises Ltd.
Business cases for sustainability: the role of
business model innovation for corporate
sustainability
Stefan Schaltegger*,
Florian Lüdeke-Freund and Erik G. Hansen
Centre for Sustainability Management (CSM),
Leuphana University of Lüneburg,
Scharnhorststr, 1, D-21335 Lüneburg, Germany
Fax: +49-4131-677-2186
E-mail: schaltegger@uni.leuphana.de
E-mail: luedeke@uni.leuphana.de
E-mail: erik.hansen@uni.leuphana.de
*Corresponding author
Abstract: A considerable body of literature deals with the creation of
economic value while increasing corporate environmental and social
performance. Some publications even focus on the business case for
sustainability which aims at increasing corporate economic value through
environmental or social measures. The existence of a business case for
sustainability is, however, mostly seen as an ad hoc measure, a supplement to
the core business, or simply a coincidence. As a contrast, this paper argues that
business model innovations may be required to support a systematic, ongoing
creation of business cases for sustainability. A framework for business model
innovation is proposed as a means to strategically create business cases on a
regular basis as an inherent, deeply integrated element of business activities.
Keywords: business case for sustainability; business case drivers; business
model for sustainability; sustainability innovation, radical innovation; corporate
sustainability; corporate social responsibility; CSR; sustainability strategies;
proactive environmental strategies; strategic management; framework;
conceptual model.
Reference to this paper should be made as follows: Schaltegger, S.,
Lüdeke-Freund, F. and Hansen, E.G. (2012) ‘Business cases for sustainability:
the role of business model innovation for corporate sustainability’, Int. J.
Innovation and Sustainable Development, Vol. 6, No. 2, pp.95–119.
Biographical notes: Stefan Schaltegger is a Full Professor of Sustainability
Management and the Head of the Centre for Sustainability Management (CSM)
at Leuphana University of Lüneburg, Germany. His research deals with
corporate sustainability management with a special focus on performance
measurement, management methods, strategic management and the business
cases for sustainability.
Florian Lüdeke-Freund is a Research Associate and PhD student at the Centre
for Sustainability Management (CSM). His PhD research deals with the solar
industry, its strategies and business models, with a focus on photovoltaic
projects. His main research interests are sustainable business models and
renewable energies.
96 S. Schaltegger et al.
Erik G. Hansen is a Postdoctoral Research Associate at the Centre for
Sustainability Management (CSM). His main research fields are innovation
management, strategic performance measurement and stakeholder governance
in the context of corporate sustainability. Previously, he was a Visiting Scholar
at Doughty Centre for Corporate Responsibility at Cranfield University, UK.
He gained his Doctoral degree at Technische Universität München, Germany.
1 Introduction
Companies have without doubt a large influence on the economy and life in general. No
sustainable development is possible without a sustainable development of corporations.
Corporate management is therefore a crucial actor in shaping the future development of
companies as well as the economy and society. Management activities are based on
managerial decisions derived from reference points such as corporate visions and
strategies which shape the business model and the organisational development of a
company. Unsustainable management decisions neglecting social and environmental
issues impede the whole corporate organisation from improving in sustainability terms.
Corporate sustainability strategies are thus of crucial importance to sustainable
development but also for successfully directing a company through sustainability-related
social, legal, political and economic requirements under conditions of market
competition.
The fact that companies are founded and run for economic purposes requires
management to develop most of its societal engagement in relation to the economic goals
of the corporation. Corporate sustainability strategies are therefore challenged to
recognise both, economic sustainability as well as social and environmental sustainability
equally (Parnell, 2008). To achieve this integration is the target and purpose of a business
case for sustainability.
This paper proposes that a business case for sustainability can be created by
addressing business case drivers. It furthermore argues that to strategically create
business cases (plural!) for sustainability on a continuous basis, requires an innovative
business model which supports the management of voluntary social and environmental
activities in addressing the business case drivers in a systematic manner. To achieve this,
it can be necessary to adapt or even radically change a company’s business model.
Engaging in business model innovation aims at unfolding the full potential of these
drivers in terms of business success and contributions to sustainable development.
This paper is structured as follows. After a discussion of what can be understood by a
business case for sustainability (Section 2), business case drivers are discussed with
regard to sustainability (Section 3). Section 4 deals with the role the business model and
strategy can exert on the creation of business cases. This analysis provides the basis to
discuss business model innovation as a strategic driver for the systematic ongoing
creation of business cases for sustainability (Section 5). Finally, Section 6 introduces a
business case framework that integrates corporate sustainability strategies, business case
drivers, and business model innovation. The discussion in Section 7 summarises the core
findings of this paper and highlights the framework’s strengths and weaknesses.
Business cases for sustainability 97
2 What is a business case for sustainability?
A business case, or what scholars in business ethics often call ‘enlightened self-interest’
[see e.g., Carroll, (1991), p.43; Frederick, (1978, 1994), p.151; Garriga and Melé, (2004),
p.53; Mintzberg, (1983), p.4; Tracey et al., (2005), p.330], is mostly described by a
situation where economic success is increased while performing in environmental and
social issues. The role of creating a business case of sustainability has been discussed for
many years from various perspectives (e.g., Dyllick and Hockerts, 2002; Epstein, 2003;
Holliday et al., 2002; Perceva, 2003; Schaltegger, 2011; Schaltegger and Wagner, 2006;
Steger, 2004). One strand of literature is whether creating business cases of sustainability
is sufficient to achieve corporate sustainability and sustainable development (Dyllick and
Hockerts, 2002). Another strand elaborates on the question whether environmental
and social activities and performance are only a side effect of pure economic rationality
(e.g., Eden, 1994). Corporate sustainability “is promoted if profitable, for example,
because of an improved reputation in various markets” [van Marrewijk, (2003), p.102].
This paper focuses on a third strand which deals with links between voluntary
environmental and social activities and corporate economic success, and how these links
can be managed, advanced, or innovated in order to improve economic success through
voluntary social and environmental activities. This is what we call the business case for
sustainability.
On a general level, the link between environmental and economic performance has
been a topic of debate in the literature for more than 15 years (see e.g., Burke and
Logsdon, 1996; Edwards, 1998; Griffin and Mahon, 1997; Hamilton, 1995; Heinze et al.,
1999; Margolis and Walsh, 2003; Pava and Krausz, 1996; Porter and van der Linde,
1995a, 1995b; Russo and Fouts, 1997; Wagner and Schaltegger, 2003). Whereas in the
beginning most of the debate was about whether a positive link or a business case exists
or not (see e.g., Esty and Porter, 1998; Hart and Ahuja, 1996; Reinhardt, 1999), research
has shifted for the last couple of years towards the question what kind of links exist
between voluntary environmental and social engagement and business success (see e.g.,
Griffin, 2000; Holme and Watts, 2000; Lankoski, 2000, 2006; Margolis and Walsh, 2003;
Martin, 2002; Pearce, 2003; Reinhardt, 2000; SustainAbility, 2001; Wagner et al., 2002;
Wagner, 2007; Wagner and Schaltegger, 2003, 2004).
One conclusion of this research is that it is an illusion to believe that any kind of
automatic relationship exists between voluntary societal activities and business success
(Schaltegger and Synnestvedt, 2002; Steger, 2004; Wagner, 2007). Theoretical and
empirical research indicates that most companies seem to have potential for one or
several business cases for sustainability (Schaltegger and Wagner, 2006; Steger, 2004).
However, this potential is often not recognised because of distorted accounting and
management information systems (Wallmann, 1995; Schaltegger and Burritt, 2000) and
other organisational rigidities (Steger, 2004). As a consequence, management is
challenged to find approaches to realise potential business cases through adequate
sustainability management. A business case for sustainability has to be created – it does
not just happen.
A business case for sustainability – as a difference to just a conventional business
case or a business case of sustainability – has the purpose to and does realise economic
success through (not just with) an intelligent design of voluntary environmental and
98 S. Schaltegger et al.
social activities. A business case for sustainability is thus characterised by three
requirements which have to be met.
Firstly, the company has to realise a voluntary or mainly voluntary activity with the
intention to contribute to the solution of societal or environmental problems. These are
intended activities for the society or the natural environment which are not just a reaction
to regulations and legal enforcement or which would be expected for economic reasons
as part of conventional business behaviour anyhow.
Secondly, the activity must create a positive business effect or a positive economic
contribution to corporate success which can be measured or argued for in a convincing
way. Such effects can be cost savings, the increase of sales or competitiveness, improved
profitability, customer retention or reputation, etc. The cause and effect relationship can
be direct or indirect, however, must not be speculative but rather based on a sound
business argumentation.
Thirdly, a clear and convincing argumentation must exist that a certain management
activity has led or will lead to both, the intended societal or environmental effects, and
the economic effect. A business case for sustainability is characterised by creating
economic success through (and not just along with) a certain environmental or social
activity.
Considering these three characteristics of a business case for sustainability may
provide some explanation for the different views about the role, value and effects of a
business case with regard to sustainable development. The question, for example,
whether creating business cases is sufficient to achieve corporate sustainability and
sustainable development (Dyllick and Hockerts, 2002), is justified if management does
not have the initial intention to solve social or environmental problems, if environmental
and social activities are only a side effect of pure economic rationality (e.g., Eden, 1994),
or if the company just tries to leverage economic performance with coincidental
sustainability contributions [van Marrewijk, (2003), p.102]. However, accepting or
increasing profit of (coincidental) sustainability activities is fundamentally different from
planning and realising voluntary social and environmental activities through which
economic performance is created or increased.
To create a business case for sustainability requires strategic management to
identify, create and strengthen the links between non-monetary social and environmental
activities on the one hand and business or economic success on the other hand.
Furthermore, in order to achieve such business cases, the formulation and implementation
of corporate strategies have to change, compared to strategies that only strive for
‘market sustainability’ through competitive advantages in the sense of the resource-based
theory of the firm, for example (cf. Parnell, 2008; Stead and Stead, 2008). That is,
strategic objectives and measures, and sometimes even the business model of a firm, have
to be oriented towards a triple bottom line (e.g., Elkington, 1998; Norman and
MacDonald, 2004). Based on these key assumptions this paper asks how strategic
sustainability management can contribute to create and manage business cases for
sustainability, what drivers it has to address in order to create a business case for
sustainability, and how business model innovation can serve as a framework for this
endeavour.
Business cases for sustainability 99
3 Drivers of business cases for sustainability
3.1 The link between voluntary societal activities and corporate economic
success
To discuss and manage business cases for sustainability requires some understanding of
the relationship between voluntary societal activities and corporate economic success
(e.g., Schaltegger and Synnestvedt, 2002). Various models have been proposed to analyse
these links theoretically and empirically (for overviews see e.g., Salzmann et al., 2005;
Schaltegger and Wagner, 2006).
Earlier work mostly assumed that the optimum level of environmental or social
performance for a firm may be just achieving legal compliance with regulation. This
‘traditionalist’ view argues that firms face a trade-off between (better) environmental or
social performance on the one hand and (worse) economic performance or
competitiveness on the other (e.g., Wagner, 2007; Walley and Whitehead, 1994; Palmer
et al., 1995; Simpson and Bradford, 1996; Xepapadeas and de Zeeuw, 1999).
Whereas reactionary people maintain that any kind of voluntary activity outside the
narrower focus of economic measures will hamper profit [Hemphill (1997) calls this
perspective the ‘minimalist’ view], modernist and innovative observers of business
reality will find examples of profit increasing or business supporting measures. Most of
the more recent research on the links between voluntary sustainability measures and
corporate economic success emphasises the possibility of win-win or triple-win potentials
(e.g., Eyring et al., 2011; Holme and Watts, 2000; Lankoski, 2000, 2006; Margolis and
Walsh, 2003; Martin, 2002; Pearce, 2003; Porter and Kramer, 2011; Reinhardt, 2000;
Schaltegger and Synnestvedt, 2002; SustainAbility, 2001; Wagner et al., 2002; Wagner,
2007).
Examples can of course be found for both effects: end-of-pipe measures creating
costs and reducing profitability as an example for profit-decreasing measures and the
sales success and profitability of green products as example for profit-increasing
measures. The economic return of a certain environmental or social performance will
vary whether cost-driving or profit-driving activities have been chosen and designed.
In other words, there is no general answer to whether it pays to be green (e.g.,
Reinhardt, 1999, 2000; Schaltegger, 2011), but it is rather a management challenge to
create societal engagement in a way that it contributes to business and economic success.
It depends on what kind of measures is chosen. A business case for sustainability has to
be created and managed – it does not just happen.
The fact that business case potentials are often overseen, even by well-informed
corporate professionals, and the necessity to identify and analyse business case potentials
and to manage them in a structured way is maybe most apparent in production where
cleaner production approaches have had difficulties to spread on a wide basis for the last
decades even in companies with large cost saving potentials (e.g., Montalvo, 2008;
Montalvo and Kemp, 2008). Furthermore, sustainability potentials are often overseen due
to a lack of integration with processes of strategy formulation and, related to this, due to
lock-in effects of established company business models which set boundaries to
variations of corporate behaviour (e.g., Johnson, 2010).
100 S. Schaltegger et al.
However, even if the most profitable measures are chosen, the success will at some
point have its culmination and decline because no company will have an unlimited
number of profit-increasing voluntary social or environmental activities in a given
business model (Schaltegger and Synnestvedt, 2002). The core question and the basis for
any management of a business case for sustainability is thus how profit increasing
societal activities, rather than cost increasing measures, can be identified and integrated
with the core business approach of a company. This is where managing a business case
for sustainability links in with strategic sustainability management and business model
innovation (see e.g., Porter and Kramer, 2011). The first linking step is the discussion of
drivers of a business case.
3.2 Drivers of business cases
The drivers of a business case for sustainability are variables which directly influence
economic success and therefore are related to the drivers of a conventional business case
[for an overview of performance drivers see Olve et al. (1999)]. The links between
voluntary sustainability activities and economic success, however, are often different to
conventional economic cause-and-effect relationships and therefore also the kind of
influence a social or environmental activity has on the economic drivers.
Reviewing the literature reveals business case drivers on a wide range from direct to
indirect influence on economic performance. The most direct link may be through costs.
The role of costs and cost reduction (see e.g., Christmann, 2000; Epstein and Roy, 1996)
is often addressed as a driver with regard to energy savings, the reduction of material
flows (e.g., Jasch, 2008) or cleaner production. Another commonly mentioned driver
which is related to contingencies, potential and actual costs, is the reduction of technical,
political, societal and market risks (e.g., Schaltegger and Wagner, 2006) as a result of
good sustainability management. Opportunity-oriented drivers of business cases for
sustainability are addressed when sales and profit margins (e.g., Porter and
van der Linde, 1995a, 1995b) or the company’s reputation and brand value (e.g., Jones
and Rubin, 1999; van Marrewijk, 2003) are increased. Furthermore, other drivers such as
market entry or development can play an important role depending on the circumstances
and the company’s strategy (e.g., Porter and van der Linde, 1995b). Apart from these
drivers with a rather direct economic impact, some authors discuss more indirect
economic effects driven by the influence of corporate sustainability. One is the
attractiveness as an employer (see e.g., Ehnert, 2009; Revell et al., 2010) which can be
driven through recruiting and selection, induction and development programmes
[Hansen, (2010), pp.109–115]. Another is the capability to innovate which sustainability
can improve because thinking in diverse dimensions is encouraged and more diverse
knowledge sources – e.g., from fringe stakeholders – are sought (see e.g., Cohen and
Winn, 2007; Pujari, 2006; Schaltegger and Wagner, 2011). In summary, the core drivers
of a business case for sustainability are presented in Table 1.
All voluntary social and environmental projects and activities can be analysed in
terms of their influence on these drivers. Current empirical research shows that these six
main drivers are by no means randomly compiled. For example, Hansen (2010, p.29) in a
meta-analysis of four German studies finds that reputation, risks, attractiveness as
employer and the capacity to innovate for new products and services were the most
important drivers for sustainability engagement. In an SME context, Collins et al. (2010)
identified reputation and brand, employees’ demands, risk management and potential cost
Business cases for sustainability 101
reductions as most important drivers to be recognised when adopting environmental and
social initiatives in companies in New Zealand. Further, Revell and colleagues found
similar drivers in their empirical research on SMEs in the UK (Revell and Blackburn,
2007; Revell et al., 2010). Their sample data from 2006 and 2007 illustrates that at this
time owner-managers were still somehow sceptical about the potential to create business
cases based on positive environmental contributions. Still, at the same time, Revell et al.
(2010) identify the drivers that might contribute to business success when striving for
environmental reform in business: cost reductions (e.g., through resource efficiency) are
seen as the most promising driver, followed by aspects such as dealing with regulatory
risks, attracting and retaining staff, attracting new customers and increasing market share,
as well as attaining good publicity.
Table 1 Core business case drivers for the business case for sustainability
Core business case drivers Exemplary authors
Costs and cost reduction e.g., Christmann (2000), Epstein and Roy (1996)
Risk and risk reduction e.g., Schaltegger and Wagner (2006)
Sales and profit margin e.g., Porter and van der Linde (1995a, 1995b)
Reputation and brand value e.g., Jones and Rubin (1999), van Marrewijk (2003)
Attractiveness as employer e.g., Ehnert (2009), Revell et al. (2010)
Innovative capabilities e.g., Cohen and Winn (2007), Pujari (2006), Schaltegger and
Wagner (2011)
An important issue which is often neglected when assessing the business or
economic effect of environmental and social activities is that their path of influence (or
cause-and-effect link) can be quite indirect, involving non-market links and actors such
as political initiatives, and NGOs. In addition, these relationships can be stochastic which
makes their management more difficult (e.g., Edwards, 1998; Griffin and Mahon, 1997;
Lankoski, 2000, 2006; Salzmann et al., 2005). The variety of possible relationships and
the different character of sustainability issues requires firstly to distinguish different
strategic positions towards integrating the societal and environmental dimensions with
business (e.g., Aragón-Correa and Rubio-López, 2007; Bhimani and Soonwalla, 2005;
Epstein, 2003; Parnell, 2008; Schaltegger and Wagner, 2011) and, secondly, to clarify if
and how specific socially or environmentally relevant activities influence the business
model of a firm (e.g., Birkin et al., 2009a; Eyring et al., 2011; Porter and Kramer, 2011;
Stubbs and Cocklin, 2008). This provides a basis for the discussion of links between
business cases for sustainability, sustainability-oriented strategies, and business model
management.
4 From business cases to business models for sustainability
4.1 The business model as a platform for creating business cases for
sustainability
A business model of a company is a somehow elusive idea of how business is conducted
in order to create and capture economic value (e.g., Mäkinen and Seppänen, 2007; Teece,
2010; Zott et al., 2011). Neither theoretical nor empirical research offers sufficient
102 S. Schaltegger et al.
answers to the question what a sustainable business model might be (e.g., Schaltegger
and Wagner, 2011; Stubbs and Cocklin, 2008). Besides that the term of a business model
is still developing, the integration of the business model with sustainability evokes
significant conceptual challenges: the integration of economically relevant sustainability
aspects with corporate business success is a multidimensional task (e.g., Hansen et al.,
2009; Stead and Stead, 2008; Schaltegger, 2011; Wagner, 2007). Furthermore, mapping
the links between business models and business cases for sustainability may be
worthwhile to get from single and event-driven business cases for sustainability to
business models for sustainability, which serve as templates for reproducing the
respective business cases on a regular basis. In other words, moving from single to
continuous business case creation may be supported by a business model rationale which
positions sustainability as an integral part of the company’s value proposition and value
creation logic.
Theoretical considerations suggest that various approaches to integrating
sustainability aspects into a business model as well as extending it should exist and that
these should be directly related to the degree to which environmental and social aspects
have become ingrained into the corporate sustainability strategy that underlies
the business model (Lüdeke-Freund, 2009). In general, it seems obvious that as
environmental and social issues gain relevance in the strategy, more extensive changes of
the business model have to be conducted. This can include both modifications of existing
models as well as the development of new ones from sketch. This – as argued later – are
different degrees of business model innovation.
In the conceptual framework proposed here, the business case drivers have the
character of intermediating variables which link the corporate sustainability strategy with
the ‘architectural’ business model level of a firm [for general interrelations between
business strategy and business architecture see e.g., Osterwalder (2004) and Teece
(2010)]. To map the links between business case drivers, corporate sustainability
strategies, and business models, the following three questions are crucial:
Does a corporate sustainability strategy comprise activities and projects which
explicitly address the business case drivers?
Does the way of addressing these drivers conform to the characterisation of a
business case for sustainability?
Does the way a corporate sustainability strategy addresses business case drivers lead
to or require business model innovations in order to achieve economic success?
To offer a management approach that identifies the crucial links between the drivers of a
business case for sustainability, the corporate sustainability strategy and the business
model, two types of interrelations have to be characterised: first, links between corporate
sustainability strategies and business case drivers, and, second, links between business
case drivers and the business model. Thus, management decisions can be supported by
answering the question whether a business case for sustainability requires a modified or
even a completely new business model.
4.2 Links between corporate sustainability strategy and business case drivers
Various taxonomies and typologies of sustainability strategies have been established
representing a continuum ranging from defensive to proactive approaches. Though also
Business cases for sustainability 103
other early advances exist (e.g., McAdam, 1973; Davis and Blomstrom, 1975; Miles and
Snow, 1978), the scale proposed by Wilson (1975) often serves as a point of orientation
for managerial approaches and receives wide acceptance amongst scholars in the area of
sustainability and CSR [see e.g., Azzone and Bertelè (1994), Carroll (1979), Henriques
and Sadorsky (1999), Roome (1992), and Wartick and Cochran (1985); for a more
detailed review of taxonomies and typologies, see Buysse and Verbeke (2003)]. He
defines reactive, defensive, accommodative, and proactive postures of responsiveness
(Wilson, 1975), a continuum which Henriques and Sadorsky (1999) also call the ‘RDAP
scale’. As the reactive strategy entirely neglects environmental and social issues, only the
three strategy types defensive, accommodative, and proactive are helpful in analysing
strategy and business case driver interrelations.
These three strategies are related to the above introduced business case drivers as
follows [similar links between corporate performance and environmental strategies were
established by, for example, Aragón-Correa and Rubio-López (2007), Henriques and
Sadorsky (1999), and Roome (1992)]:
Defensive (limited integration): Defensive strategic behaviour is often a reaction on
(perceived) cost-constraints. Managers deal with sustainability issues in a rather
narrow, reactive manner. The main motivation behind defensive strategies is not to
gain competitive advantage with sustainability performance, but the need to comply
with legislation [also termed ‘compliance strategy’; Roome, (1992), p.18]. Defensive
strategies are directed towards the protection of the existing business and revenue
generating rationale (‘business logic’; Prahalad and Bettis, 1995). Efficiency and
cost-related aspects are addressed as well as communication and public relations to
reduce reputational and legislative risks.
Accommodative (integration): This strategy reflects a rather cautious modification of
internal processes and the modest consideration of environmental or social objectives
such as environmental protection, eco-efficiency, or occupational health and safety.
Managers are willing to use sustainability management systems and tools to control
the organisation and are partly aware of the need for organisational change which
requires some involvement and training of employees [comparable to Roome’s
(1992, pp.18–19) ‘compliance-plus strategy’]. Overall, accommodation strategies
integrate environmental or social objectives in most of the business processes and
maybe partly in the product range, however, without questioning the revenue logic or
the core business as such.
Proactive (full integration): Proactive strategies integrate environmental or social
objectives as part of the core business logic in order to contribute to sustainable
development of the economy and society. The core business and thus all business
processes and the full product range are directed towards sustainability, as is the
revenue logic. Therefore, central concepts such as the definitions of costs and risks
are modified to account for negative externalities (i.e., social costs and risks).
Efficiency and cost-related aspects are addressed as well as customer issues,
sustainability-oriented innovation capabilities and societal ‘non-market’ issues. A
proactive strategy pursues business and sustainability goals simultaneously and
strives for business leadership through outstanding sustainability performance [this
refers to what Roome (1992, p.19) calls ‘commercial and environmental excellence’
and ‘leading edge’].
104 S. Schaltegger et al.
Table 2 Interrelations between corporate sustainability strategies and business case drivers
Corporate sustainability strategy
Core drivers of business
cases for sustainability
Defensive Accommodative Proactive
Costs and cost reduction
Mainly cost and efficiency-oriented
compliance activities (often ‘low
hanging fruit’ only)
Cost and efficiency-oriented
activities actively pursued and linked
to sustainability issues when possible
Cost and efficiency-oriented activities actively
created to achieve sustainability goals; cost
concept includes external social costs
Risk and risk reduction
Sustainability issues seen as
sources of risk; activities aim at risk
reduction (in contrast to precaution)
Sustainability and risk management
seen as complementary and
opportunity-creating concepts
Sources of high risks are largely removed
Sales and profit margin
Products or product communication
are adapted to reduce risks of sales
decrease; cause-related marketing to
‘attach’ a green image to unchanged
products
Sustainability-oriented customer
segments are partly acknowledged
and served with specific products
(besides existing conventional
product lines)
Market-oriented strategies to gain competitive
advantage by making sustainability-oriented
products and services become the core of the
company’s portfolio
Reputation and brand
value
Reputational activities, rather
reactive and mainly oriented towards
risk reduction
Sustainability activities have limited
potential to contribute to reputation
and brand due to mainly internal
focus
Sustainability is actively communicated and is
a major driver of reputation and brand value;
the company engages in boundary-spanning
and stakeholder integration
Attractiveness as
employer
Increased salaries to retain and
attract personnel
Sustainability engagement (and
related communication) partially
increases attractiveness to some
groups of employees and talents
Continuous education, innovative positions,
social attention (e.g., towards families)
increase attractiveness to highly skilled
workforce and new talents due to high
sustainability reputation
Innovative capabilities
Innovations to obscure
non-performance with regard to
sustainability (e.g., ‘greenwashed’
products)
Process, product, and organisational
innovations limited by boundaries of
existing business logic
Sustainability-oriented process, product,
and organisational innovations transform
business logic; sustainability problems and
stakeholders are considered a key source of
innovation
Business cases for sustainability 105
As can be seen from Table 2, different sustainability strategies put different emphases on
the individual business case drivers. Consequently, every sustainability strategy is
supposed to affect the business model of a company differently. Before mapping the links
between strategy and business model (which is an ongoing and controversial debate
amongst strategy scholars; e.g., Casadesus-Masanell and Ricart, 2010), the latter has to
be linked to the business case drivers. Based on these links, every modification or
development of the business model with the strategic intention to support voluntary
environmental and social activities contributing to these drivers can be regarded as an
approach towards a business model for sustainability.
4.3 The links between business model and business case drivers
Progress in corporate sustainability is an entrepreneurial and managerial venture based on
normative goals and strategies which have to be translated into practical operations
through adequate concepts and instruments (see e.g., Schaltegger and Burritt, 2005;
Schaltegger and Wagner, 2006). The above outlined interrelations between corporate
sustainability strategies and the business case drivers illustrate some of the complexities
of managing this translation. Going one fundamental step further raises the question of
how to change the existing (i.e., dominating) business logic of a company which creates
the foundation for the strategy and business case interrelationships. Transforming the
business model is a common theme in strategic management and organisation studies
(several ‘mainstream’ authors address this topic from a business model perspective; see
e.g., Chesbrough, 2007, 2010; Johnson, 2010; Johnson et al., 2008; Mitchell and Coles,
2003, 2004a, 2004b; Teece, 2010). To study the links how different business models and
strategies influence the generation mode of business cases for sustainability is thus a
strategic challenge (only a limited number of authors deal with this type of
sustainability-oriented organisational change; see e.g., Birkin et al., 2009a, 2009b; Stubbs
and Cocklin, 2008).
Two different causalities between sustainability strategies and the business model
may be considered. First, if a company implements a strategy aiming at the business case
for sustainability the business model may have to change (directly or indirectly). In other
words, the need to develop and activate business case drivers (e.g., the need to improve
cost structures due to more expensive but environmentally friendly production inputs)
may require changes of the business model configuration (see Table 3). Second, and vice
versa, the business model also determines and constrains corporate strategy and the
business case for sustainability. The business model is often interpreted as a determining
factor of corporate behaviour and thus business opportunities [e.g., Baden-Fuller and
Morgan, 2010; Chesbrough, 2010; Wirtz, 2011; Yip, 2004; Zott et al., 2011; see also
Elkington (2004), who calls the business model the ‘DNA of business’]; i.e., the business
model in turn influences business strategy and operative outcomes (such as cost
structures).
In other words, a company which tries to improve its sustainability performance has
to change its business model, however incremental or radical, which can turn out to be
the decisive (i.e., limiting or supporting) factor for succeeding in creating one or many
business cases for sustainability [concerning different intensities of business model
innovation see e.g., Chesbrough (2007, 2010), Mitchell and Coles (2003), and Yip
(2004)]. Despite the fundamental significance of business models, besides some
106 S. Schaltegger et al.
anecdotal evidence (Hansen et al., 2009) and early works which apply a very broad
understanding of business models (e.g., Stubbs and Cocklin, 2008), the business model
has been mostly neglected in academic and practitioner-oriented literature on corporate
sustainability and corporate sustainability management.
Therefore, in order to map out interrelations between business case drivers and the
business model, a general business model concept has to be introduced. Four central
pillars can be identified when reviewing relevant literature [Ballon, (2007), p.8; emphases
added]:
“the products and services a firm offers, representing a substantial value to a target
customer (value proposition), and for which he is willing to pay
the relationship the firm creates and maintains with the customer, in order to satisfy
him and to generate sustainable [here: long-term] revenues
the infrastructure and the network of partners that are necessary in order to create
value and to maintain a good customer relationship
the financial aspects that can be found throughout the three former components, such
as cost and revenue structures.”
From a strategic management perspective, a business model primarily focuses on the
value created for customers (e.g., Wirtz, 2011). Therefore, a company has to manage its
partnerships, activities, and resources, i.e., its infrastructure, to offer adequate value
configurations for products and services, whereas activities and resources are both
company-owned and acquired from partners (e.g., Amit and Zott, 2010; Zott et al., 2011).
To address customer segments communication and distribution channels as well as
diverse customer relationships have to be established. Finally, the financial aspects refer
to optimising revenue streams from customers as well as infrastructure costs in order to
appropriate economic value for the company (e.g., Osterwalder, 2004). Osterwalder’s
business model concept was among the first to include a thorough definition and a
representation based on these four pillars and their relationships (ibid.); meanwhile,
variations of this concept can be found throughout the present literature (e.g., Johnson
et al., 2008; Johnson, 2010; Wirtz, 2011; Chesbrough, 2010).
Understanding these four pillars is crucial for managing a business model and it is
even more important for understanding business model innovation (e.g., Chesbrough,
2010; Teece, 2010; Wirtz, 2011; Zott et al., 2011). Whilst the four business model
pillars describe the logic of companies in more general terms, when it comes to
sustainability-oriented business model innovation it is essential to understand and
manage the links between these pillars and the business case drivers – which in turn
influence whether a business case is created or not. Table 3 shows possible interrelations
between the business model pillars and business case drivers.
As Table 3 shows, the different business model pillars are differently affected by the
business case drivers. That is, based on the chosen sustainability strategy, different
drivers are addressed which in turn requires different degrees of business model
innovation.
Business cases for sustainability 107
Table 3 Interrelations between business model and business case drivers
Generic business model pillars
Core drivers of business
cases for sustainability
Value proposition (VP) Customer relationships (CR) Business infrastructure (BI) Financial aspects (FA)
Costs and cost reduction
Products and services with
lower energy or maintenance
costs for customers
Cost-efficient contracting
relationships, closed-loop
service systems
Costs of new products and
services can be lowered
through partnerships
Balancing cost reductions for
customers and cost structures
of new products and services to
increase profitability
Risk and risk reduction
Lowering societal risks through
products and services can create
value to certain customer
segments
Service-relationships
reducing sustainability risks
for customers result in higher
customer loyalty
Resources, activities,
and partnerships set-up in
order to minimise internal
and external risks
Improved risk and credit rating
resulting from lowered
sustainability risks
Sales and profit margin
Environmentally and socially
superior products and services
require modified or new VPs to
turn into sales and profits
Higher customer retention
and customer value as a result
of sustainability-oriented,
service-intense relationships
New products and
services may require
strategic partnerships (e.g.,
coopetition) to overcome
market barriers
New products and services
and/or new customer
relationships contribute to
diversified revenue streams
Reputation and brand
value
Sustainability as distinctive
element of good corporate
reputation
Sustainability as marketing
feature of the brand
increasing customer loyalty
Strategic partnerships with
sustainability leaders can
increase reputation and
brand value
Sustainability performance
leading to a good rating and the
consideration in sustainability
indices and funds
Attractiveness as
employer
A companies’ offerings and
VPs allowing for personal
identification to attract
employees
Better customer service as a
result of higher employee
motivation
Attractiveness as principal
can enhance the quality of
activities, resources, and
partnerships
Reduced costs for HR
acquisition, less fluctuation
costs and lower compensation
costs
Innovative capabilities
Unfolding the full
sustainability-potential of
innovations enables modified
or new VPs
Innovative products and
services creating solutions to
sustainability problems,
improving customer retention
To allow for innovations
to unfold may require new
activities, resources, and
partnerships
Higher innovation potential
and expectations for profitable
innovations leading to an
increase of shareholder value
108 S. Schaltegger et al.
5 The role of business model innovation
5.1 Introducing business model innovation
Despite the fact that business model research is a rather young field of management
studies (e.g., Baden-Fuller and Morgan, 2010; Zott et al., 2011), a broad discourse on
business model innovation has evolved for the last decade (e.g., Chesbrough and
Rosenbloom, 2002; Chesbrough, 2007, 2010; Mitchell and Coles, 2003, 2004a, 2004b;
Demil and Lecocq, 2010; Johnson, 2010; Johnson et al., 2008; Teece, 2010; Zott et al.,
2011). According to the literature review conducted by Zott et al. (2011), there is
consensus on some core issues of research on business model innovation. Scholars seem
to agree that the business model is not only a facilitator of technological and
organisational innovations, but can become itself subject to strategic innovation in order
to share and leverage resources such as knowledge, managerial and entrepreneurial skills,
or to enable reconfigurations of the underlying value chain or value network (e.g.,
Schweizer, 2005; Wirtz, 2011). From this perspective, the business model is a strategic
asset to improve firm performance (e.g., Afuah, 2004; Casadesus-Masanell and Ricart,
2010; Chesbrough, 2007; Hamel, 2000; Magretta, 2002), and, more fundamentally, may
define a leadership agenda on strategic business model management and innovation (e.g.,
Chesbrough, 2010; Doz and Kosonen, 2010; Smith et al., 2010). However, the current
discourse widely ignores issues of corporate sustainability [exceptions are e.g., Johnson
and Suskewicz (2009) with regard to eco-innovations and Yunus et al. (2010) with regard
to social entrepreneurship].
To fill this gap, a basic understanding of what constitutes business model innovation
has to be related to corporate strategies, the above defined drivers and the concept of the
business case for sustainability. The framework introduced by Mitchell and Coles (2003)
provides an appropriate starting point. In a longitudinal study on 100 public companies
they analysed that outperforming companies shared one common feature:
“... it was clear that perennial top performers were frequently making
fundamental improvements in several dimensions ... of their business models at
once for serving their customers, end users and other important stakeholders
(such as employees, partners, suppliers, distributors, lenders, shareholders, and
the communities the company serves). The most effective companies were
making these multidimensional business model shifts every two to four years.”
[Mitchell and Coles, (2003), p.16]
The most important finding of their study refers to what might be termed a strategic
leverage effect of business model innovation: in line with Porter (1996), and Mitchell and
Coles (2003) identified cost and differentiation strategies to be driving outperformance,
whereas the really new insight was that top performers were using business model
innovations to amplify their strategic effectiveness. Amit and Zott (2010) draw
comparable conclusions from different studies among thousands of CEOs who see
business model innovation as top priority compared to product or process innovations
which often create only short-term competitive advantages. Amit and Zott (2010) go even
further and separate business model innovation completely from product and process
Business cases for sustainability 109
innovation. They claim that it is less costly, more effective, and the appropriate approach
in times of capital scarcity, such as the latest global economic downturn.
5.2 Degrees of business model innovation
Business model innovation covers changes from incremental adjustments to more radical
changes. Mitchell and Coles (2003) propose a classification of business model
innovations which distinguishes improvement, catch-up, replacement and actual
innovation. As all of these steps of improvement are somehow related to (more or less
incremental or radical) innovation, different notions are proposed here to match the
purpose of creating business cases for sustainability. Four stages – adjustment, adoption,
improvement, and redesign – are differentiated in the following:
Business model adjustment refers to changes of only one (or a minor number of)
business model element(s), excluding the value proposition; i.e., modifications of
customer relationships, business infrastructure, or the financial pillar alone constitute
improvements.
Business model adoption [similar to the ‘catch-up’ stage proposed by Mitchell and
Coles (2003)] refers to changes that mainly focus on matching competitors’ value
propositions. The goal is to not fall behind market standards and competitors. This
requires adoptions of products and/or services, but sometimes also parts of the
customer relationships pillar and the business infrastructure as these elements
can be part of the value proposition as well (Osterwalder, 2004).
Business model improvement takes place, put simply, when substantial parts of
the business model elements are changed [Mitchell and Coles (2003), call this
‘replacement’, even though the value proposition is not replaced]. That is,
simultaneous changes of a major number of elements, such as customer relationship
approaches, infrastructure elements such as the business network, and the financial
logic are required to replace an existing model. The value proposition, however,
stays unaltered.
Business model redesign exists in a focused sense when an improvement leads to a
completely new value proposition. While a business model might be improved
without changing the value proposition to the market (e.g., shifting from own
production to purchasing), a real redesign replaces the underlying business logic and
offers new products, services or product-service systems (Devisscher and Mont,
2008). An example is a car manufacturer who develops from a sole product vendor
to a mobility provider, for example, by offering car-sharing or even
ride-sharing services (Hansen et al., 2010).
The strategic leverage effect of business model innovation increases the effectiveness of
business strategies. Against this background, the following section presents an integrated
framework by bringing together sustainability strategies (and the related business case
drivers) and the four degrees of business model innovation.
110 S. Schaltegger et al.
6 An integrated framework of sustainability strategy, business case drivers
and business model innovation
The previous section argued that, firstly, environmental and social activities aiming at
business cases for sustainability can be attributed to a continuum of generic sustainability
strategies (defensive, accommodative, and proactive). Furthermore, to create business
cases these strategies should address, i.e., support, the main drivers of business success
(costs and cost reduction, sales and profit margin, risk and risk reduction, reputation and
brand value, attractiveness as employer, as well as innovative capabilities; cf. Table 2).
Secondly, modifications or even further development of a company’s business model
may be necessary to fully unfold the business case potential of these sustainability
strategies and the drivers they address (cf. Table 3).
Summarising these links, the present section introduces an integrated framework for
the business case for sustainability by combining sustainability strategies, the degrees of
business model innovation and business case drivers. This framework is intended to help
practitioners and researchers to identify how a given sustainability strategy must be
combined with a certain degree of business model innovation (cf. Table 4):
Defensive strategies with slight degrees of business model adjustment or adoption
protect the current business model. They only touch few business case drivers and
these in a modest way and thus do not create substantial business cases for
sustainability.
Accommodative strategies go along with a change and some improvement
of the business model, thus exerting some influence on business case drivers by
experimenting within the current model. The influence of accommodative strategies,
however, is less fundamental and lasting than that of proactive strategies.
As a contrast, proactive strategies leading to (actual) business model redesign
address many business case drivers strongly and continuously, with the effect of
regular creations of business cases for sustainability.
The framework should also help to identify possible conflicts between the chosen
corporate sustainability strategy and the degree of business model innovation. For
example, if an ambitious, proactive sustainability strategy is chosen, but the degree of
business model innovation is constrained to a business model adoption (e.g., through
green ‘me-too’ products), frictions will inevitably occur as the business model will be too
rigid to fully implement the sustainability strategy and develop the related business case
drivers. A textbook example is the greening strategy of Shell, ‘Responsible Energy’ (e.g.,
Backer, 2009). Understanding these relationships might help to identify and adjust wrong
expectations towards the payoff of social and/or environmental measures, what otherwise
would lead to the management’s disappointment. Further developing the understanding
of these linkages may also help to prevent greenwashing, as it helps external stakeholders
to earlier detect dissonances in a company’s approach.
Business cases for sustainability 111
Table 4 Framework for business cases for sustainability and integrated business model
innovation
Sustainability
strategies
Degree of business
model innovation
Effects of addressed drivers of business cases for sustainability
Contribution to
business cases
Business model
adjustment*
Defensive
Business model
adoption*
Mainly cost and efficiency-oriented measures aim for low-hanging fruit and thus only
require moderate (if any) business model changes. Accordingly, only a minor number of
business elements (excluding the value proposition) are affected. Sustainability issues are
primarily perceived as risks leading to protective behaviour, while reputational activities
are of a rather cosmetic nature.
Accommodative
Business model
improvement
Cost and efficiency-oriented measures are pursued actively and partly linked to
sustainability issues. Together with sustainability-oriented risk management this can
require very basic changes like renewing production processes, changing value network
partners, or approaching new market segments. A general orientation towards external
addressees in terms of reputation, brand, and attractiveness to employees can require
basic changes in customer relationships and business processes.
Proactive
Business model
redesign (in a
focused sense)
As proactive strategies feature radical changes to the core business logic of a company, a
major number of business model elements will be affected. Sales and profits are improved
by environmentally and socially outstanding products and services, leading to not yet
available value propositions. Cost and efficiency-oriented measures are applied to support
the new products and services and to gain competitive advantage through sustainability
performance, which in turn pays in terms of risk management, reputation and corporate
brand value. As innovative drivers unfold their full potential the company becomes
increasingly attractive to high-skilled employees.
Note: *Mitchell and Coles (2003, p.17), on which this classification is based, themselves reduce the lowest two degrees of business
model innovation to one category.
Business cases for sustainability
112 S. Schaltegger et al.
7 Discussion and outlook
A business case of sustainability is often described as a situation where economic success
is increased while performing in environmental and social issues. As a distinct difference
to this view (see Section 2), a business case for sustainability is created only if economic
success through voluntary social and environmental activities is achieved. Given that
such a business case does not happen, but has to be managed actively, core requirements
of a business case for sustainability are voluntary social and environmental activities
which are based on deliberate management activities to improve sustainability through
which a positive economic effect is created.
To deliberately manage business cases for sustainability requires a good
understanding of how the drivers of a business case can be positively influenced with
societal and environmental activities. The main identified business case drivers are costs
and cost reduction, sales and profit margin, risk and risk reduction, reputation and brand
value, attractiveness as employer, and innovative capabilities (see Section 3).
Furthermore, sustainable development requires more than coincidental, ad hoc or
eclectic creation of a business case now and then. A strategic (i.e., systematic, coherent
and continuous) management of business cases for sustainability may rather require a
more fundamental change and development of the business model of the company.
Investigating the interrelations between the corporate strategy and the drivers of a
business case for sustainability on the one hand, and the business model and the drivers
of a business case on the other hand supports the argument that business model
innovation may be key to create a strategic leverage effect (see Sections 4 and 5).
Based on the understanding of a business case for sustainability, a business model for
sustainability can be defined as supporting voluntary, or mainly voluntary, activities
which solve or moderate social and/or environmental problems. By doing so, it creates
positive business effects which can be measured or at least argued for. A business model
for sustainability is actively managed in order to create customer and social value by
integrating social, environmental, and business activities.
Business model innovations as a result of business model management can be broad
or focused. Based on Wilson’s (1975) and Carroll’s (1979) distinction between defensive,
accommodative and proactive strategies and similar to Mitchell and Coles’ (2003)
business model innovation hierarchy a basic typology of sustainability-oriented business
model innovation was developed (see Section 6): defensive strategic management to
protect the current business model; accommodative strategic management to experiment
within the given business model; and proactive strategic management leading to business
model redesign in the focused sense. These strategies address the business case drivers
with different intensities and focus, and thus differ in how likely and systematically a
business model for sustainability will be achieved, with accommodation and pro-action
being the most focused and promising.
However, despite the promises of business model innovations being the next big step
of strategic management (e.g., Voelpel et al., 2004; Johnson, 2010), it has to be
recognised that this kind of innovation often faces significant barriers. Chesbrough
(2010) reviews central hurdles identified from previous academic research: conflicts with
the current business model, conflicts with the underlying asset configuration, and missing
clarity about the ‘right’ model to exploit an innovation (ibid, pp.358–359). Conflicts with
the prevailing model can origin in two major sources: firstly, the resistance of managers
being afraid that the acknowledgement of their personal contribution to the company
Business cases for sustainability 113
might decrease if the modus operandi changes, and secondly, the influence of the
dominant business logic on the information that flows into and circulates within the
company. These inherent conflicts can result in strong resistance since managers prefer to
do what they have always done and with what they have been successful (given the
existing incentives) (e.g., Chesbrough, 2010; Prahalad and Bettis, 1995) and since
organisations tend to learn what they already know (e.g., Argyris, 1999; Kim, 1993;
Levitt and March, 1988). As a consequence the current underlying asset configuration of
the business model may not be changed. Asset allocation and exploitation are key
strategic issues directly related to managers decision-making and information availability.
Accommodative and proactive business model innovations might be blocked because of
allocation principles in favour of existing technologies with high gross margins: “As the
firm allocates its capital to the most profitable uses, the established technology will be
disproportionately favored and the disruptive [i.e., the new] technology starved of
resources” [Chesbrough, (2010), p.358]. This can ultimately lead to decoupling (Meyer
and Rowan, 1977) between the formulated strategies and actual behaviour.
Furthermore, missing clarity about the ‘right’ business model to exploit innovations
may be another crucial obstacle for sustainability-oriented business model innovation.
This failure is closely related to the influence that the dominant logic exerts on
organisational learning and information availability. In their exemplary article on
business model innovation at Xerox, Chesbrough and Rosenbloom (2002) were able to
track back missed business opportunities to the underlying, dominant business model
which created a lock-in effect against technologies which could not be exploited with the
existing business model. Such an example was the very successful Ethernet protocol
developed by 3Com, a company that commercialised a technology that did not match the
Xerox business model. Chesbrough’s (2010, pp.359–362) conclusion is that creating and
adopting new business models by means of experimentation, effectuation and
organisational leadership can help to overcome these hurdles.
Sustainability-oriented innovations are obviously predisposed to not fit with the
dominant logic of an established business model. However, accommodative and
proactive sustainability strategies may help creating and adopting new business models
which support the continuous and systematic creation of business cases for sustainability.
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... According to Schaltegger (2002), ecopreneurship is a result of the overlap between ecological concerns and entrepreneurial behavior, thus being broadly defined as entrepreneurship through an environmental lens. Ecopreneurship emerged in the literature with Richard J. Blue in 1990, Steven J. Bennett in 1991, and Gustav Berle, also in 1991, who started using the terms environmental entrepreneur, green entrepreneur, and ecological entrepreneur, among other variants, before the current term ecopreneurship became dominant (Schaper 2002;Schaltegger et al. 2012). ...
... In the case of environmentally oriented companies, the benefits of creating environmental value are, according to Schaltegger et al. (2012), larger and extend to various aspects. Relationships with stakeholders are strengthened, and green marketing increases customer loyalty. ...
... Relationships with stakeholders are strengthened, and green marketing increases customer loyalty. Employees, on the other hand, are more engaged in sustainable goals and practices (Schaltegger et al. 2012). Thus, ecocompanies favor the generation of profit through the combination of environmental and social benefits, and ecopreneurs aim not only to reduce their harmful effects on the environment but also to generate positive impacts for nature (Kuckertz et al. 2019). ...
... 1.) CBMs' innovation for sustainable development: Schaltegger, Lüdeke-Freund & Hansen (2012) argue that BMs innovation must assist a systemic, ongoing formation of sustainable business cases. Innovation is a subject of SBMs' economic, social and environmental value creation improvements (Rauter, Zimek, Baumgartner & Schöggl, 2019); therefore, sustainable assessment is required to evaluate SBM's innovation to improve these areas. ...
... CBMs innovativeness is critical for higher sustainability performance(Schaltegger et al., 2012); furthermore, conceptual transformation and internal process improvement positively impact service innovation(Lee et al., 2021). Signori et al. 2019 claim that sustainability can be improved through innovation and explicit business functions. ...
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