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We suggest these new business models —
where stakeholders replace shareholders as
the focus of value maximization — could
empower capitalism to address overwhelming
global concerns.1
MUHAMMAD YUNUS, BERTRAND MOINGEON, & LAURENCE LEHMANN-ORTEGA
1 Yunus, M., Moingeon, B., & Lehmann-Ortega, L. 2010. Building social business models: Lessons from the Grameen experience. Long Range Planning, 43: 308–325.
3Business Models for Shared Value: Main Report
Are … companies truly transforming their
business models in a deep and meaningful
way? I have not seen that evidence.2
ERNST LIGTERINGEN, FORMER CEO OF GLOBAL REPORTING INITIATIVE
2 The Economist Intelligence Unit. 2014. New business models: Shared value in the 21st century. London, UK: The Economist.
4Business Models for Shared Value: Main Report
© 2016, Network for Business Sustainability South Africa
This work is protected under international copyright law. It may not be reproduced or distributed for commercial purposes without the expressed, written consent of the Network for Business
Sustainability. When using this work in any way, you must always recognize the Network for Business Sustainability South Africa using the following citation: Lüdeke-Freund, F., Massa, L.,
Bocken, N., Brent, A., & Musango, J. 2016. Business models for shared value: Main report. Network for Business Sustainability South Africa. Retrieved from: http://www.nbs.net.
ISBN: 978-0-620-70726-8
business models for shared value
Main Report
Prepared by Florian Lüdeke-Freund, Lorenzo Massa, Nancy Bocken, Alan Brent, & Josephine Musango
5Business Models for Shared Value: Main Report
Dear reader:
We are pleased to share with you this report on
business models for shared value. Many managers
have recognized the financial benefits of responding
to societal issues for some time. But the concept
of shared value resulted in more managers fully
embracing social action. Advocates of shared value
are now leading a revolution in strategic management
and innovation, urging business to find ways to create
economic value in a way that also benefits society.
This report provides a state-of-the-art overview of
research and practice in this area. It recognizes both
the contributions of shared value and the ways in which
the approach builds on earlier and more established
concepts, in particular corporate sustainability.
For researchers, the report provides a comprehensive
overview of the area and new avenues for future
exploration. For managers, the content offers
guidance, showing how businesses can strategically
move toward shared value models. Managers may
also wish to explore the Business Models for Shared
Value Executive Guide and Primer.
This research was inspired by the Leadership Council
of the Network for Business Sustainability South
Africa. Sustainability challenges in South Africa can
make the need for shared value business approaches
particularly acute. This report draws on the South
African context, particularly in its geographically
diverse case studies. However, the lessons of shared
value apply worldwide.
This project was conducted by Florian Lüdeke-Freund
(University of Hamburg, Germany) together with
Lorenzo Massa (Vienna University of Economics and
Business, Vienna, and École Polytechnique Fédérale
de Lausanne, Switzerland), Nancy Bocken (TU Delft,
The Netherlands, and University of Cambridge,
United Kingdom), and Alan Brent and Josephine
Musango (Stellenbosch University, South Africa). The
research also benefited from valuable insights from
the team’s Guidance Committee, which included Brian
Chicksen (AngloGold Ashanti); Christopher Whitaker
(Barloworld); Jannette Horn and Pieter van der Walt
(Altron); Stephen Elliott-Wetmore (WWF); Sue Lund
(Transnet); and Ralph Hamann, Kristy Faccer, and
Nicola Ehrlich (NBS South Africa).
This systematic review is one of many that form the
backbone of NBS. We are proud of our systematic
reviews. Systematic reviews were popularized
in the field of medicine as a research method to
systematically and rigorously review the body of
evidence from both academia and practice on a
topic. The results of NBS’s systematic reviews are
authoritative accounts of the strategies and tactics of
managing sustainably, as well as the gaps for further
research. We hope this report will help you understand
how you and your organizations can enhance your
business model to reach more sustainable outcomes.
Sincerely,
Ralph Hamann, PhD
Academic Director, Network for Business
Sustainability South Africa
Professor, University of Cape Town Graduate School
of Business
Tima Bansal, PhD
Executive Director, Network for Business Sustainability
Professor, Richard Ivey School of Business
6Business Models for Shared Value: Main Report
acknowledgements
NBS-SA acknowledges the support for the network and this project provided by Leadership Council members, the Gordon Institute of Business
Science (GIBS) Transnet Programme in Sustainable Developement at the University of Pretoria, the Graduate School of Business (GSB) at the University
of Cape Town, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), and EY.
The research team would also like to thank Justin Smith (Woolworths), Sanjeev Raghubir (Nestlé), and Ian Ellison (Jaguar Land Rover). Florian Lüdeke-
Freund would like to thank Prof. Mark Swilling (Stellenbosch University), and Prof. Stefan Schaltegger (Leuphana University) for their inputs during the
project. Lorenzo Massa thanks Prof. Chris Tucci (École Polytechnique Fédérale de Lausanne), Prof. Maurizio Zollo (Bocconi University), and Prof. Gianni
Lorenzoni (University of Bologna) for their insightful comments and advice. A special thanks goes to Maya Fischhoff (NBS) for her helpful guidance
during the development of this document and Alyssa Lord-Hill (University of Hamburg) for her research support. Support funding provided by the
University of Stellenbosch, University of Hamburg, the Green Economy and Resource Governance (GERG) chair at École Polytechnique Fédérale de
Lausanne; and the Swiss National Science Foundation, SINERGIA grant 147666 “Business Model Dynamics,” is also gratefully acknowledged.
7Business Models for Shared Value: Main Report
table of contents
12 1. INTRODUCTION
12 1.1 Purpose of this report
14 1.2 Research approach
16 1.3 Scope and limitations of this report
17 2. LINKING BUSINESS MODELS FOR SUSTAINABILITY TO SHARED VALUE CREATION
20 3. MAJOR CONCEPTS APPLIED IN THIS REPORT — CORPORATE SUSTAINABILITY AND BUSINESS MODEL
20 3.1 Corporate sustainability
22 3.2 From business model to business model for sustainability (BMfS)
31 4. FRAMING BUSINESS MODELS FOR SUSTAINABILITY — THE HOURGLASS MODEL
33 5. BUSINESS MODEL INNOVATION FOR SUSTAINABILITY — A ROADMAP MODEL
34 5.1 Sustainability Strategy Roadmap (SSR)
41 5.2 Business Model Thinking (BMT)
45 6. ARCHETYPES OF BUSINESS MODELS FOR SUSTAINABILITY
45 6.1 Orientations for sustainability innovation
47 6.2 A typology of archetypes of business models for sustainability
57 6.3 Combining archetypes
58 7. SPECIAL FOCUS — A BASIC TYPOLOGY OF SOCIAL ENTERPRISE BUSINESS MODELS
58 7.1 Social and inclusive business models
60 7.2 Practical implications: Guiding questions for creating social enterprises
63 7.3 Types of social and inclusive business models
8Business Models for Shared Value: Main Report
66 8. A SYSTEMIC VIEW ON BUSINESS MODEL INNOVATION FOR SUSTAINABILITY — CONDITIONS, BARRIERS,
AND TOOLS
66 8.1 Conditions of business model innovation for sustainability
68 8.2 Barriers to business model innovation for shared value
71 8.3 Tools to support business model innovation for sustainability
76 9. SUMMARY
78 APPENDIX I: SYSTEMATIC LITERATURE REVIEW
78 Development of publication database
80 The big picture – A topical landscape of BMfS research
82 Quantitative bibliographical analysis
86 APPENDIX II: OVERVIEW OF BMFS DEFINITIONS
87 APPENDIX III: COMPARING CSR, CORPORATE SUSTAINABILITY, AND SHARED VALUE
88 REFERENCES
9Business Models for Shared Value: Main Report
figures
Figure 1. Overview of report structure and content
Figure 2. Criteria to identify relevant literature on business models for
sustainability
Figure 3. Conceptual interrelations between BMfS and shared value creation
Figure 4. Major challenges of corporate sustainability
Figure 5. Trajectories of corporate development
Figure 6. Business models describe how value is created
Figure 7. A BMfS aims at improved business case drivers
Figure 8. The Hourglass Model
Figure 9. Sustainability Strategy Roadmap: Developing a strategic
roadmap for sustainability and shared value opportunities
Figure 10. Developing business models for sustainability and shared value
initiatives
Figure 11. Archetypes “mediate” between high-level orientations and
operational innovations
Figure 12. Innovations that fit the archetypes
Figure 13. Basic typology of social enterprise business models
Figure 14. From decoupling to integration — business and sustainability
strategy
Figure 15. The value-mapping tool
Figure 16. The Flourishing Business Canvas
Figure 17. The Triple Layered Business Model Canvas
Figure 18. The Clover Business Model Canvas
Figure 19. The “Business Innovation Kit” and “Sustainability Innovation
Pack”
Figure 20. Development of final publication database
Figure 21. Topical landscape derived from the reviewed body of BMfS
literature
Figure 22. Journals with two or more BMfS articles (number of articles)
Figure 23. Number of BMfS publications per year, 2003 to April 2015
Figure 24. Cumulative development of total number of BMfS publications,
2003 to April 2015
Figure 25. Top 10 industries addressed in BMfS publications (number of
articles)
10Business Models for Shared Value: Main Report
tables
Table 1. Approaches to business model reporting in practice identified by
the IIRC
Table 2. Business model innovation intensities
Table 3. Business model innovation and business cases for sustainability
Table 4. New frameworks introduced in this report
Table 5. Major orientations of business models for sustainability
innovations
Table 6. Definition and summary of archetypes
Table 7. Benefits and risks of social business ventures
Table 8. Seven business models for social business ventures
Table 9. Topical keywords used in database searches combined with
“business model/s”
Table 10. Exemplary search algorithm combining title and abstract
keywords
Table 11. Applied search field combinations
Table 12. Journals providing one BMfS article
Table 13. Quality metrics of the five journals with most BMfS articles
Table 14. Selected definitions of business models for sustainability (in
chronological order)
Table 15. Comparing CSR, corporate sustainability, and shared value
11Business Models for Shared Value: Main Report
case studies
Case box 1. Nestlé, South Africa
Case box 2. Aravind Eye Care System, India
Case box 3. Tesla Motors, USA
Case box 4. Energy utilities, Germany
Case box 5. Strategic challenges and opportunities in the logistics sector
Case box 6. Jaguar Land Rover, UK
Case box 7. GrameenPhone, Bangladesh
Case box 8. Toyota, Japan
Case box 9. Net-Works, The Philippines and Cameroon
Case box 10. Solar Sister, South Africa
Case box 11. Locomute, South Africa
Case box 12. Water Action Hub, South Africa
Case box 13. MittiCool, India
Case box 14. Patagonia, USA
Case box 15. WonderBag, South Africa
Case box 16. Woolworths (I), South Africa
Case box 17. Lendico, South Africa
Case box 18. Ziqitza Health Care Ltd., India
Case box 19. Woolworths (II), South Africa
Case box 20. Uber Pop, Italy
12Business Models for Shared Value: Main Report
1.1 Purpose of this Report
Over the past decade, the debate around the purpose of business
(Handy, 2002) and the ability of capitalism to foster prosperity (Jackson,
2011) has intensified dramatically. The dominant market logic of free
trade and maximizing shareholder value, perhaps best epitomized in
Milton Friedman’s famous 1970 New York Times Magazine3 article, has
been variously accused of being outdated, insufficient to create value for
society, and perhaps even undesirable. Politicians and business leaders,
consumers, academics, and grassroots activists increasingly realize that
focusing on short-term financial performance is hampering the private
sector’s ability to provide innovations that allow both business and
society to prosper, while simultaneously preserving environmental integrity.
Within this discussion, a new concept has been proposed and quickly
moved up on business leaders’ agendas: Michael Porter and Mark
Kramer’s notion of “shared value.” It appeared originally in an article
published in 2006 and was featured a few years later on the cover page
of Harvard Business Review, where it was introduced as “the big idea”
of “how to fix capitalism” (Porter and Kramer, 2006, 2011). Shared value
proposes to redefine the purpose of business as “creating economic
value in a way that also creates value for society by addressing its needs
and challenges” (Porter and Kramer, 2011, p. 64).
Against this background, the purpose of this Network for Business
Sustainability South Africa (NBS-SA) report is to offer an initial answer to
the question:
How are innovative business models creating shared value?
The focus on business models in relation to shared value is promising
and challenging at the same time. While shared value can be achieved
in many ways, including the general adoption of more or less innovative
business policies and operating practices, markets create structural
barriers to more radical solutions and to the ability of companies to fully
align their search for profits with societal progress. Testimony to this
fact is the tendency of social entrepreneurs — who rely on firms and
3 Friedman, M. 1970. The social responsibility of business is to increase its profits. The
New York Times Magazine, September 13: 173–178.
markets as vehicles for addressing social and environmental issues — to
experiment with radically novel ways of doing business, often leading to
the emergence of hybrid organizations (Battilana, Lee, Walker, & Dorsey,
2012; Florin & Schmidt, 2011). Hybrid organizations can be defined as
organizations that mix elements such as value systems and action logics
of various sectors of society into their business models, often exhibiting
qualities of both non-profit and for-profit enterprises (e.g. Pache & Santos,
2013). They can be understood as representing the middle ground
between pure non-profit organizations surviving on philanthropy and
grants on one end, and pure for-profit organizations with little or no social
mission on the other end (Haigh, Walker, Bacq, & Kickul, 2015). Hybridity
exists because of a tension inherent in markets between financial
profitability and environmental and social value creation.
Generally speaking, unregulated markets are quite inefficient in valuing
environmental and social value creation. As a consequence, the rewards
of green and social business initiatives are often ambiguous (Vogel, 2005).
Corporate initiatives that create environmental and social value may
result in advantages such as improved corporate reputation (Hart, 1995;
Lozano, 2015; Russo & Fouts, 1997), enhanced learning capabilities
(Shrivastava, 1995), or the ability to attract talented employees, but it
often takes a long time before these effects occur. As a consequence,
firms face structural impediments to fully embrace shared value. A
growing number of authors suggest that one promising way to overcome
the barriers to simultaneously being profitable and benefiting the natural
environment and society is to adopt innovative business models, which
means to develop new architectures of organizational value creation,
delivery, and capture (e.g. Massa and Tucci, 2014; Schaltegger, Hansen,
& Lüdeke -Freund, 2016).
This report builds on this emergent line of inquiry. Its primary purpose is
to provide an overview of the state of the art of research at the nexus of
business models and shared value and related business practice. More
specifically, NBS-SA sought answers to these two questions:
What are leading examples of novel business models that create
shared value and what do they have in common?
1. introduction
13Business Models for Shared Value: Main Report
How can businesses learn from the experiences of those at the
vanguard of sustainable business model innovation?
These questions resonate with the emerging field of research on business
models for sustainability (Boons & Lüdeke-Freund, 2013; Bocken, Short,
Rana, & Evans, 2014) as well as companies’ increasing need to adopt
effective sustainability innovation approaches (Adams, Jeanrenaud,
Bessant, Denyer, & Overy, 2015), and finally to engage in shared value
creation (Porter & Kramer, 2011). Therefore, this report focuses on
three interlinked concepts and phenomena: business model innovation,
corporate sustainability, and shared value creation. The report also pays
specific attention to the reality of South Africa’s sustainability challenges,
which are to eliminate social inequality and move towards a green
economy (Von Bormann & Gulati, 2014). However, the implications of this
review should be of general interest to a broader audience of business
practitioners and researchers.
The authors of this report decided to focus on business models for
sustainability as the reference body of work. The reason for this decision
is threefold:
First, as noted above, shared value is a relatively recent concept. The
literature on shared value, and in particular the scientific literature on
business models for shared value, is scant.
Second, the concept of shared value overlaps significantly with more
mature concepts (Crane, Palazzo, Spence, & Matten, 2014), most
notably corporate social responsibility (CSR) in its original meaning
and corporate sustainability (see Appendix III for a comparison of
CSR, corporate sustainability, and shared value). This overlap offers an
opportunity to draw insights from these more established and mature
research fields and further advance the notion of shared value.
Third, these more mature concepts have already passed the test of
market implementation. Therefore, they are to a lesser extent subject
to the over-enthusiastic expectations that often accompany new
management concepts (cf. Abrahamson, 1996 on “Management
Fashion”).
In a nutshell, the received literature on business and society in general,
and sustainability in particular, offers an opportunity to take, we hope, a
balanced perspective and avoid some of the mistakes incurred in the past
with conceptually similar notions that became victims of management
fashion.
Our literature review and interviews with practitioners and thought leaders
revealed several insights related to the idea of business models for
shared value, including:
A view of business as an engine of societal progress. The concept
of shared value recognizes that societal contributions of companies are
not limited to paying taxes, creating employment, or devising useful
products. Business also has the potential, resources, and capabilities to
develop innovative solutions that turn environmental and social issues
(read: problems) into market opportunities. The idea of shared value, as
put forward by Porter and Kramer (2011), is to increase the size of the
pie for all, rather than reallocate the given. According to some of the
practitioners interviewed for this report, this approach offers an evolution
of their understanding of the role of business in society, emphasizing
that they are not only economic agents but also drivers of societal
progress. According to them, the concept of shared value motivates the
search for opportunities to integrate business success (value creation for
companies) with societal progress (value creation for society).
A broader notion of value — from primarily economic to also social
and environmental. Consistent with the first point, shared value offers
an extended interpretation of value creation resembling a triple bottom
line approach integrating people, planet, and profit (Elkington, 1998). At
the core, the notion of shared value implicitly points to a fundamental
question: What is value? In many of the writings on shared value, it is
explicitly recognized that value is something beyond economic value
and can refer to environmental, social, and economic forms. Thus, it
resonates to some degree with the triple bottom line idea put forward
in the field of corporate sustainability. Although Porter and Kramer
argue that shared value is different and “more” than sustainability, we
emphasize the overlap of both concepts, rather than their (debatable)
conceptual differences. In this report, we use corporate sustainability
to refer to an integration of business activities with environmental and
social management to create economic value, healthy ecosystems, and
strong communities (NBS, 2015). If successfully implemented, corporate
sustainability leads to shared value creation.
A system-level perspective on value creation — from being
predominantly centred on customers and shareholders to embracing
rm’s stakeholders. Our review reveals a holistic and systemic perspective
on value creation that is embedded in the very concept of sharing. The
14Business Models for Shared Value: Main Report
are sharing. When thinking about sustainable business models for shared
value, a fundamental question emerges: For whom is value created and by
often involves an articulated value creation architecture, or business activity
stakeholders.
In this report, we start from the expectations for business models for
sustainability and shared value and briefly present the major topics
found in the literature. With the goal of offering a language and a way
of thinking to support the identification of opportunities for shared value
and to support the design of innovative business models, we introduce
two frameworks. The Hourglass Model synthesizes and structures the
most important elements of sustainability-oriented and shared value
creation on a systems level (Section 4). A more general Roadmap Model
links strategic considerations with opportunity identification (by mean
of a dedicated tool, the Sustainability Strategic Roadmap), while it
supports corresponding business model innovation (by means of another
dedicated tool, Business Model Thinking) (Section 5). Section 6 presents
“archetypes” to support such innovation processes by offering role models
to draw on, and Section 7 has a special focus on social enterprise
business models. Finally, Section 8 takes a comprehensive perspective
on the conditions needed to develop business models for sustainability
and shared value, the general managerial challenges related to managing
business model innovation in a shared value context, and a selection of
tools available to help overcome these challenges.
1.2 Research Approach
Our approach to compiling this report can be described as learning
from the literature, rather than reporting from the literature. Considering
the mixed audience of this report, who are business practitioners and
academics, our aim is to build on the rich body of literature to provide
concepts and frameworks that integrate the bits and pieces found in
academic publications and develop these further, instead of merely
reporting what we found. Therefore, we merged our insights from a
systematic view of the literature with an overall framework rationale
that tries to integrate the big picture to help understand and dene
business models for sustainability and shared value (Sections
2, 3, and 4) with more practical issues of their development and
management (Sections 5, 6, 7, and 8) (Figure 1 on following page).
This report builds on a systematic literature review methodology (Fink,
2013), which is detailed in Appendix I. Our keyword search in three major
publication databases led to an initial sample of 1,724 peer-reviewed
scientific journal articles, of which 180 were identified as relevant to
review the state of the art of research on sustainable business models.
We also used nine relevant articles and reports from the grey literature
published by think tanks, non-governmental organizations (NGOs), and
institutions such as the Organisation for Economic Co-operation and
Development (OECD).
Articles and other publications contained in our review were chosen
mainly according to five criteria (Figure 2 on following page). First, the
business model should be defined as a central theoretical framework or
concept — that is, more than a mere buzzword. Second, the business
model should be understood as an entrepreneurial or managerial
concept, e.g. to realize strategies, to improve the market performance of
innovations, or support organizational change (as opposed to concepts
focusing on units of analysis other than organizations or companies,
such as industry). This focus is different from information technology or
operations management interpretations referring to business models as
information technology (IT) architectures, enterprise or process models,
which were among the major reasons to exclude some initially identified
articles. Third, business activities should be understood as a central
means to address sustainability issues, while, fourth, sustainability
should be defined according to a triple bottom line or comparable
perspective that integrates business interests with issues related to
the natural environment, societal development, cultural, or other social
concerns. And fifth, the articles should focus on both the business
model concept and sustainability issues.
We did not systematically search for publications in the related fields of
research on shared value and sustainability innovation because excellent
and up-to-date reviews on these topics are currently available (Adams,
Jeanrenaud, Bessant, Denyer, & Overy, 2015; Dembek, Singh, & Bhakoo,
2016; see also the NBS reviews Innovating for Sustainability (Adams,
Jeanrenaud, Bessant, Overy, & Denyer, 2012) and Measuring and Valuing
Social Capital (Acquaah, Amoako-Gyampah, & Nyathi, 2014)). In the
course of this review, we highlight and explain the interrelations between
sustainable business models and shared value creation based on our
review and the works of Adams, Dembek, and their colleagues, while
our focus remains on business models and their relevance for corporate
sustainability.
15Business Models for Shared Value: Main Report
Figure 1: Overview OF repOrt structure and cOntent
Figure 2: criteria tO identiFy relevant literature On business mOdels FOr sustainability
Understanding and defining business models for sustainability and shared value
Section 2 Section 3 Section 4 Appendices I–III
Linking business models for
sustainability to shared value
creation
Major concepts applied in this
report — Corporate sustainability
and business model
Framing business models for
sustainability — The Hourglass
Model
1. Systematic literature review
2.
3. Comparing CSR, corporate
sustainability, and shared value
Developing and managing business models for sustainability and shared value
Section 5 Section 6 Section 7 Section 8
Business model innovation for
sustainability — A Roadmap
Model
Archetypes of business models for
sustainability
Special focus — A basic typology
of social enterprise business
models
A systemic view on business model
innovation for sustainabilty —
Conditions, barriers, and tools
Section 9
Summary
Business model
Sustainability
Relevant BMfS
literature
Central construct
(framework, concept)
centric construct
Social and environmental
value creation
Realized through business
activities
16Business Models for Shared Value: Main Report
1.3 Scope and Limitations of this Report
This report takes a business and not a public policy perspective.
That is, societal challenges and potential solutions are described
from the point of view of business organizations, taking public policy
and other forms of governmental intervention as given contingencies.
Acknowledging that businesses are influenced and even shaped by
laws and public policy, and vice versa, we focus on businesses and
their value creation models as primary unit of analysis. However, dealing
with sustainability and shared value creation inevitably requires an
understanding of environmental and societal issues, and thus to a
certain degree public policy frameworks, laws, and other governmental
interventions.
This report asks how companies create value for themselves and
their stakeholders. Extending classic business model theory, this report
is basically about business model design that “yields value propositions
that are compelling to customers, achieve advantageous cost and risk
structures, and enable significant value capture” (Teece, 2010, p. 174)
and does so with positive effects beyond a company’s boundaries for the
benefit of financial and non-financial stakeholders, as well as the natural
environment. The business perspective of this report (see previous point)
allows a more detailed analysis of the core functions of business models
— that is, creating, delivering, and capturing value by means of relevant
value propositions (Zott, Amit, & Massa, 2011). However, a more inclusive
perspective on value creation is required when it comes to business
models for sustainability. The Hourglass Model intends to account for this
fact.
This report dierentiates between value and values. We use value
mainly in terms of the outputs and outcomes of business activities.
Applying more differentiated notions of value and values reveals two
facets (Breuer and Lüdeke-Freund, 2017a, 2017b): first, value as
forms of expected output and outcome, such as financial revenues
or reduced social and environmental impacts (Ernst & Young [EY] and
International Integrated Reporting Council [IIRC], 2013); and second,
values as subjective notions of the desirable that are expressed as
beliefs, attitudes, and behaviours (Schwartz, 2012). As such, values are
fundamental criteria for individual, organizational, and societal evaluations
and decision-making. If not stated otherwise, we use the notion of value
to refer to the valuable outputs and outcomes of business activities.
Some cases in this report take a South African perspective. South
Africa is the only country worldwide with a constitution that recognizes
sustainable development as a human right (Du Plooy, 2006). Publicly
listed companies are obligated to report in detail on their sustainability
activities and performance. However, South Africa’s society and its
development path indicate unsustainable patterns, environmentally,
socially, and economically (Department of Environmental Affairs [DEA]
and United Nations Environment Programme [UNEP], 2013). As a result,
South African companies face diverse and interlinked business and
societal challenges in terms of sustainable and shared value creation.
Studying these companies offers insights into challenges and solutions
that companies around the world can learn from.
Some South African companies have found ways to contribute to the
country’s overall development through their business activities, namely
by creating business cases, and maybe even business models, for
sustainability. Some of these companies are presented in this report.
But while obvious forms of social value creation are well aligned with
companies’ self-interests, such as employment and access to products
and services, deeper-rooted problems, such as the polarized education
system, HIV/AIDS, insufficient public infrastructure, and the unequal
distribution of wealth between (predominantly) black and white South
Africans, are much harder to tackle from a business perspective.
Entrepreneurs and managers must consider the ecological and social
foundations of human existence. From a corporate sustainability and
shared value perspective, thoughtless economic growth is not an
option. WWF South Africa describes the tensions between the country’s
necessary transition towards a green economy and the need to integrate
it with socio-economic progress (WWF South Africa, 2013).
This report aims to identify current best practices in terms of business
model innovation to help companies solve these problems and create
shared value through their own business models for sustainability.
17Business Models for Shared Value: Main Report
2. linking business models for sustainability to shared
value creation
Shared value results from “policies and operating practices that enhance
the competitiveness of a company while simultaneously advancing
the economic and social conditions in the communities in which it
operates” (Porter & Kramer, 2011, p. 66). According to its originators,
the idea of shared value is different from concepts such as CSR,
corporate sustainability, business ethics, or values-based leadership.
Furthermore, “shared value is not social responsibility, philanthropy, or
even sustainability, but a new way to achieve economic success. It is not
on the margin of what companies do but at the centre” (Porter & Kramer,
2011, p. 64). Porter and Kramer identify its next of kin as CSR, to
which they add a strategy perspective (see also Porter & Kramer, 2006).
According to them, traditional CSR implies contradictions and trade-
offs between the manifold needs of society and the particular interests
of companies. Often, CSR and sustainability initiatives are detached
from business strategies and serve “window dressing” purposes with
limited societal impact (e.g. Crilly, Zollo, & Hansen, 2012; Fiss & Zajac,
2006). Porter and Kramer propose shared value as a bridge between
the self-interest of companies and societal progress. A firm’s business
interests become a lever to enhance environmental and social well-being,
achieved through redefining markets, revising value creation processes,
and renewing business–community relationships. The former two aspects
directly speak to business model innovation (Section 3.2.4).
While we fully acknowledge the overarching question and intention
motivating this review report — How are innovative business models
creating shared value? — we see that the received literature in CSR and
sustainability has much to offer. First, shared value is a young concept
and the business model literature dedicated to it is scant. Second, shared
value is characterized by a significant conceptual overlap with the more
mature notions of CSR (e.g. Carroll, 1979; Carroll & Shabana, 2010;
Davis, 1960) and corporate sustainability (e.g. Gladwin, Kenelly, & Krause,
1995; Montiel, 2008). Such overlaps offer opportunities in terms of
cross-fertilizing insights and drawing from more established and mature
research fields.4 Third, and related, we are careful not to fall into line with
the spreading use of Porter and Kramer’s concept in spaces where CSR
4 See Appendix III for a comparison of CSR, corporate sustainability, and shared value.
or corporate sustainability have been, and still are, helpful in analyzing
and organizing the role of business in society — despite their particular
shortcomings, which we also have to accept.
This is not about preserving (academic) tradition. Rather it is about
acknowledging the original contributions and meaning of overlapping
concepts. At the same time, our approach is the manifestation
of prudence, the desire to avoid over-enthusiasm for a particular
management fashion. Here, we listen to the critique of Crane, Palazzo,
Spence, and Matten (2014), who argue that shared value is an
instrumental concept that subscribes to a “reductionist view of the
purpose of business” (p. 143), namely to create economic value only,
and adds the strategic search for win–win potentials with societal
development. Shared value is thus an instrumental approach that does
not redefine or broaden the purpose of business in society, but seeks
profit-driven win–win situations. This critique is also associated with the
concept of corporate sustainability (cf. Crane, Palazzo, Spence, & Matten,
2014; Hahn, Figge, Pinkse, & Preuss, 2010; see Section 8.1 for further
motivations to engage in corporate sustainability beyond instrumentalism).
However, decades of CSR and corporate sustainability research and
practice have provided theories and concepts that aid us in answering
the question of how innovative business models can change the way
companies create value.
18Business Models for Shared Value: Main Report
Figure 3: cOnceptual interrelatiOns between bmFs and shared value creatiOn
We connect the notion of “business model for sustainability,” or BMfS, to the shared value concept as shown in Figure 3. The conventional business
model concept, here following Osterwalder and Pigneur (2009), must be extended to acknowledge the particular normative goals of corporate
sustainability. Based on the resulting definition of a BMfS, one could argue that it supports shared value as it strives for multiple value creation (Section
3.2.2), which is another way of referring to creating shared value for business and society.
However, while every BMfS potentially creates shared value, not every shared value initiative builds on a BMfS. This is because of the specific focus of
the business model concept. While initiatives to increase worker safety, employee skills, or reduced resource use might lead to forms of shared value
(cf. Porter & Kramer, 2011), these do not necessarily touch a company’s business model or involve business model innovation, as is shown by the case
of Nestlé in South Africa (Case box 1).
A BUSINESS MODEL describes
the rationale of how an organization
creates, delivers, and captures value
(Osterwalder & Pigneur, 2009)
BUSINESS SUSTAINABILITY refers
to business models and managerial
decisions that create value over the
short, medium, and long terms, based
between the company’s value chain
and the social and environmental
systems on which it depends
(NBS SA, 2014)
INFORM
A BUSINESS MODEL FOR
SUSTAINABILITY describes (i)
a company’s sustainable value
proposition to its customers and
all other stakeholders, (ii) how it
creates and delivers this value
proposition, and (iii) how it captures
economic value while maintainingor
regenerating natural, social, and
economic capital beyond its
organizational boundaries
(cf. Schaltegger et al., 2016)
MAY LEAD
TO
SHARED VALUE results from policies
and operating practices that enhance
the competitiveness of a company
while simultaneously advancing the
economic and social conditions inthe
communities in which it operates
(Porter & Kramer, 2011)
IS
REALIZED
BY
19Business Models for Shared Value: Main Report
case bOx 1: nestlé, sOuth aFrica
nestlé: creating shared value thrOugh cOllabOrative resOurce management
Nestlé is recognized as a global supplier of food products. Their aim is
to be a global leader in “nutrition, health, and wellness.” Through their
products and services, employment, extensive supplier networks, and
global economic contributions, Nestlé affects the lives of millions. In
fact, 4.1 million families around the world earn a living because of Nestlé,
including many rural smallholders in developing countries. In 2014, the
company supported the livelihoods of 695,000 farmers and directly
employed 339,456 people across 200 countries. Of these, more than
3,500 were employed in eight factories situated in rural and peri-urban
areas of South Africa (Nestlé, 2014).
“We believe that for a company to be successful over the long term and
create value for shareholders, it must create value for society” (Nestlé,
2014). For Nestlé, this commitment manifests in their 10 corporate
business principles focused on consumers, human rights, and labour
practices; Nestlé’s people, suppliers, and customers; and the environment.
Naturally, the socio-economic value creation described above is a basic
requirement for successful business. However, being a global leader brings
Nestlé not only a duty to operate responsibly but also an opportunity to
create long-term positive value for society. In line with Porter and Kramer’s
concept (2011), Nestlé refers to this approach as “creating shared value”
all business sectors (illustrated in the CSV hierarchy below). Thus, they seek
in addressing society’s most critical challenges and for maximizing a
company’s potential shared value creation. Nestlé’s 10 corporate business
principles also highlight areas in which they strive to create shared value:
nutrition, health, and wellness; water; and agriculture and rural development.
These three areas represent the pinnacle of CSV because they have an
nutrition, rural development, and water are top priorities, representing
business opportunities and operational challenges.
Water and energy shortages have severely impacted Nestlé’s production
activities in South Africa, making these factors a business imperative. In
response, Nestlé is active at different levels in the country. Nestlé engages
with government authorities through a public–private partnership called the
Strategic Water Partners Network. This partnership works collectively with
local stakeholders, creating shared value. At the local level, Nestlé’s Mossel
Bay factory is implementing their own “Zer-Eau” water withdrawal initiative,
which seeks to achieve zero municipal water use for factory processes (on
the sustainability level of the CSV hierarchy). In addition, in its local milk
supply chain, the company promotes smarter water monitoring and
management techniques to dairy farmers to help protect the local water
catchments from overuse. Nestlé worked with a leading NGO, Conservation
South Africa, to produce The Sustainable Dairy Handbook, a guideline to
help dairy farmers implement best practices in sustainable agriculture and
resource conservation.
creating shared value
Creating
Shared Value
Nutrition, water, rural
development, our
focus areas
Laws, business
principles, codes
of conduct
Protect the future
Sustainability
Compliance
Nestlé’s CSV hierarchy (source: Nestlé, 2014, p. 4).
20Business Models for Shared Value: Main Report
3. major concepts applied in this report — corporate
sustainability and business model
This section presents the foundations required to understand and define
business models for sustainability (BMfS) and shared value. It introduces
central concepts — corporate sustainability and business model — and
synthesizes these by briefly discussing the major features of BMfS and
business model innovation for sustainability and shared value.
3.1 Corporate Sustainability
Although we see some commonalities between corporate sustainability
and shared value, and know that the latter is more appealing to
companies in practice, we perceive a lack of conceptual guidance
on the side of shared value. In practice, this gap can be closed with
corresponding business consulting concepts. But in academic research,
to which this report belongs, this lack of guidance is critical. Therefore,
we decided to focus our review on publications that are mainly located at
the intersections of business model and sustainability research.
The conceptual framework underpinning this report builds on the notion
of business sustainability put forward by NBS (2015) as “business
models and decisions that create economic value and that benefit the
world today and tomorrow.” Adding some more detail to this definition,
we can say that “business sustainability refers to business models
and managerial decisions that create value over the short, medium
and long term, based on mutually beneficial interactions between the
company’s value chain and the social and environmental systems
on which it depends” (NBS-SA, 2014, p. 3). Business sustainability,
used synonymously with “corporate sustainability” in this report (cf.
Schaltegger & Burritt, 2005), poses various challenges for entrepreneurs
and managers in general, and for the development and management of
business models in particular.
3.1.1 MAJOR CHALLENGES
The challenges of corporate sustainability can be structured according
to the three spheres of sustainable development — natural environment,
society, and economy — and absolute and relative business contributions
to these spheres (Schaltegger, 2013). Figure 4 summarizes these
challenges and defines their integration as the overarching goal
of corporate sustainability management — i.e. to achieve positive
contributions in all three spheres through business activities. The
literature proposes various key performance indicators and accounting
systems to manage a company’s effectiveness and efficiency. These can
be classified according to the illustration shown in Figure 4.
Figure 4: majOr challenges OF cOrpOrate sustainability
(based On schaltegger, 2013)
Absolute forms of
value creation
Relative forms of
value creation
Eco-efficiency
Economic
effectiveness
Eco-effectiveness Socio-effectiveness
Socio-efficiency
Eco-justice
ECONOMIC
SOCIAL
ECOLOGICAL
Integration
21Business Models for Shared Value: Main Report
Concepts at the three corners represent a company’s eectiveness in
terms of positive contributions to the ecological, social, and economic
spheres. Effectiveness is measured in absolute terms (e.g. tons of waste
avoided, additional income in poor regions) and indicates improvements
in a single sphere (e.g. the natural environment), contributing to the
overall goal of economic value creation, healthy ecosystems, and strong
communities (cf. NBS, 2015).
Ecological effectiveness (eco-effectiveness) represents absolute
reductions of a company’s negative impact on the environment and
absolute improvements of the state of the natural environment. It
relates to corporate environmental management.
Social effectiveness (socio-effectiveness) represents absolute
performance with regard to social and cultural demands and to
maintaining and enhancing the legitimacy of business activities. It
relates to corporate social management.
Economic effectiveness represents the traditional aim of business
management, economic success. Sustainability managers are
challenged to support economic effectiveness and help business
leaders with the other two spheres.
Business managers are used to working with different kinds of relative
measures indicating the eciency of their activities. Efficiency measures
can be used to describe the relationship between the absolute
achievements in the different spheres of corporate sustainability:
Ecological efficiency (eco-efficiency) measures the relative proportions
of an economic and a physical measure (e.g. revenues to tons of
waste). It can be defined as the ratio of economic value added to
environmental impact added.
Social efficiency (socio-efficiency) measures the relative proportions
ofan economic and a social measure (e.g. revenues to number of
staff accidents). Societal development in a broader sense can also be
measured (e.g. additional income per unit of turnover).
Ecological justice (eco-justice) reflects the relationships of ecological
and social objectives and indicators (e.g. environmental impacts
relative to poverty). Eco-justice addresses, inter alia, questions of a
just distribution of common natural resources.
the multiple spheres of corporate sustainability. As shown in Appendix I,
increasingly prominent role are “base of the pyramid” (BoP) approaches
addressing social issues in developing countries, and green and technology-
driven innovations to support cleaner production and consumption.
3.1.2 IN SEARCH OF STRONG BUSINESS CASES
Corporate sustainability management aims to deal with the challenges
described above in a way that contributes to business success and
societal progress. If both are achieved in concert, so-called business
cases for sustainability will result (Schaltegger, Lüdeke-Freund, &
Hansen, 2012; Willard, 2012). However, existing research comes to
one conclusion: business cases for sustainability do not just happen;
they have to be actively created. Theory and practice show that most
companies have the potential to create business cases for sustainability,
but this potential is often neglected because of distorted accounting and
management systems.
Figure 5: trajectOries OF cOrpOrate develOpment (based On
schaltegger & burritt, 2005)
Financial
performance
Social and/
or ecological
performance
Extended business case
potential through business
model innovation
P0
22Business Models for Shared Value: Main Report
The particular approach that motivated this report is business model
innovation, which has only recently been understood as a means to
enhance and capitalize on companies’ potential to create business cases
for sustainability (Lüdeke-Freund, 2013). Of course, business model
innovation does not automatically offer “ready-made” business cases. But
understanding its particular levers to align a company’s value creation
with societal needs is a promising way to tackle sustainability challenges
through business activities. Therefore, aligning interests, thinking
systemically, and purposely addressing environmental and societal needs
are crucial for the development and management of BMfS (Bocken, Rana, &
Short, 2015; Bocken, Short, Rana, & Evans, 2013; Stubbs & Cocklin, 2008).
But not all business cases are equal. Figure 5 distinguishes weak
and strong forms (see Neumayer, 2013, for a discussion of weak and
strong sustainability). When a company improves its ecological and/
or social performance at the cost of its financial performance (which
actually would not qualify as a “business” case), or vice versa, it is on a
trajectory towards weakly sustainable corporate development (indicated
by the lower dotted curve). Strong cases, on the other hand, integrate
ecological, social, and economic performance (indicated by the upper
dashed curve and the hatched area). Ideally, real BMfS allow companies
to create strongly sustainable business cases (cf. Upward & Jones, 2016),
i.e. movements towards the upper right in Figure 5.
In a broader sense, we could also subsume hybrid forms of organizations
that merge profit and non-profit “cases” under BMfS (e.g. social
enterprise business models; Section 7). The more we relieve the profit
motive and leave the instrumental perspective of corporate sustainability
behind, the more we approach the area of organizational hybridization
and enter the field of new business ventures and corporate spin-offs that
experiment with non-traditional business rationales (e.g. Florin & Schmidt,
2011; Grassl, 2012; Michelini & Fiorentino, 2012). As we show in Section
3.2, such approaches are an important and dynamically growing part of
the wider field of research on BMfS and shared value creation.
3.2 From Business Model to Business Model
for Sustainability (BMfS)
The second foundation of this report is the business model concept,
which is generally used to describe the way a company does business.
Its most prominent definition, according to our review, is the one by
Osterwalder and Pigneur (2009, p. 14): “A business model describes the
rationale of how an organization creates, delivers, and captures value.”
Although this is a useful starting point, further conditions must be defined
for business models for sustainability. In the following, we introduce the
business model concept in general (Section 3.2.1) and then move on to
the idea of business models for sustainability (Section 3.2.2).
3.2.1 THE BUSINESS MODEL CONCEPT
The International Integrated Reporting Council (IIRC) identifies five
major applications of the business model concept in practice. While
the classification is useful for several reporting purposes, we focus on
its function as a representation of organizational value creation (Table
1). Despite varying definitions, there is agreement that the business
model can be used to describe, analyze, communicate, and design the
value creation, delivery, and capture infrastructure of a business (for
reviews see Wirtz, Pistoia, Ullrich, & Göttel, 2016; Zott, Amit, & Massa,
2011). These functions apply to different scales, ranging from individual
entrepreneurs to business units and whole industries (Hemphill, 2013;
Svejenova, Planellas, & Vives, 2010).
table 1: apprOaches tO business mOdel repOrting in
practice identiFied by the iirc (in chartered institute OF
management accOuntants, internatiOnal FederatiOn OF
accOuntants, and pricewaterhOusecOOpers, 2013, p. 4)
Organizational aspect Description
Organizational overview What the entity does, how it is structured, or
where it operates.
Business strategy Key aspects of an organization’s strategy.
Value chain Place in the value chain and dependencies on
key inputs.
Financial performance How the business model drives profitability or
revenue generation.
Value creation How the organization’s inputs, activities,
and relationships lead to value and desired
outcomes.
23Business Models for Shared Value: Main Report
A well-designed and successfully implemented business model creates
value for the company and its customers, as well as stakeholders such
as suppliers and business partners. Therefore, the business model
attempts to explain how resources, capabilities, and activities are geared
to providing a customer value proposition, which represents the
benefits offered to customers through products and services. Figure 6,
which is based on the most general business model elements defined by
Osterwalder and Pigneur (2009), shows that a business infrastructure
is required to make and deliver the customer value proposition (based
on own and partner resources, capabilities, and activities), which is
communicated and delivered through customer interfaces (based on
customer relationships and channels). The underlying nancial model
defines capital and revenue sources to cover the costs associated with
the other business model elements, aiming to generate a financial surplus.
Figure 6: business mOdels describe hOw value is created
(based On Osterwalder & pigneur, 2009)
Financial profits are required to maintain and improve a company’s
business model. Therefore, Figure 6, which is our modified version of the
Osterwalder and Pigneur (2009) concept, indicates a quasi-circular value
flow. The main goal is to support a company’s value creation by modelling
the interplay of the above-mentioned elements. Their interplay creates
value for different business model stakeholders, such as suppliers (within
the business infrastructure), customers (within the customer interface),
owners, and shareholders (within the financial model). The value for
these stakeholders is delivered through multiple channels (e.g. supply
contracts for partners, shops for customers, or dividend payments for
shareholders), and captured in diverse forms (e.g. payments for suppliers,
use value for customers, or profits for shareholders). Figure 6 expresses
this more holistic view by embedding all business model elements within
the overall function of value creation.
The quasi-circular value flow indicates that a company’s value creation
has its foundation in a business infrastructure and that part of the value
created is retained through the company’s financial model, in order to
sustain its operations. This company-focused perspective, which is
representative of traditional business model concepts, will be extended in
the following discussion. An alternative representation (i.e. the Hourglass
Model) is proposed in Section 4.
This approach to modelling value creation must be extended to consider
the challenges of corporate sustainability and shared value creation.
An increasing number of publications discusses the linkages between
business models and contributions to a sustainable development of
nature, society, and economy (see, for example, a recent Organization
& Environment special issue on “Business Models for Sustainability”;
the earliest publications date back more than 10 years; e.g. Wells &
Nieuwenhuis, 2004). The big picture of this field of research is presented
in Appendix I.
3.2.2 WHAT IS A BUSINESS MODEL FOR SUSTAINABILITY?
A business model for sustainability (BMfS) allows a company to
pursue corporate sustainability and shared value through the deliberate
creation of business cases. A BMfS helps a company to improve the
effectiveness and efficiency of its business activities in the spheres of
the natural environment, society, and economy, and to profit from these
activities (Schaltegger, Lüdeke-Freund, & Hansen, 2012; Schaltegger,
Hansen, & Lüdeke-Freund, 2016). A business model for sustainability
Business
infrastructure
Customer
interface
Customer
value
proposition
Financial
model
VALUE CREATION
24Business Models for Shared Value: Main Report
is about creating significantly increased positive effects — and/or
significantly reduced negative effects — for the natural environment and
society through changes in the way a company and its network create,
deliver, and capture value (cf. Bocken & Short, 2016; Lüdeke-Freund,
2009, 2013; Stubbs & Cocklin, 2008; Wells, 2013; see Appendix II for an
overview of different BMfS definitions found in the literature).
cOncept bOx 1: business mOdel FOr sustainability (bmFs)
deFinitiOn
At the heart of such a business model lies a sustainable value
proposition (SVP) that goes beyond a mere customer value proposition.
An SVP is an offering, based on a product and/or a service, that is valuable
not only to a company’s primary and paying customers but also to its other
stakeholders (see Case box 2). The notion of a sustainable value proposition
and Soukka (2016, p. 1) as “a promise on the economic, environmental
Companies implementing BMfS and sustainable value propositions are
economically viable while they contribute to solving environmental and
social problems. They create multiple forms of value beyond financial
gains for their different financial and non-financial stakeholders. In
other words, they deliberately create forms of shared value. Thus, in a
sense, a BMfS tries to address externalities by acknowledging company
efforts towards social and environmental value creation. By changing
their business models, companies could find ways to reconnect social
and environmental value creation with profitability. This is exemplified by
Aravind Eye Care System described in Case box 2.
case bOx 2: aravind eye care system, india
normative requirements — as
a starting point to guide the development and implementation of BMfS (cf.
Boons & Lüdeke-Freund, 2013). More detailed and science-based principles
for BMfS were developed by Upward (2013) and Upward and Jones (2016).
business mOdel FOr sustainability
(bmFs) deFinitiOn
“A business model for sustainability helps describing, analyzing,
managing, and communicating (i) a company’s sustainable value
proposition to its customers and all other stakeholders, (ii) how
it creates and delivers this value, and (iii) how it captures economic
value while maintaining or regenerating natural, social, and
economic capital beyond its organisational boundaries.”
(Schaltegger, Hansen, & Lüdeke-Freund, 2016, p. 6)
aravind eye care system: a sOcially
sustainable value prOpOsitiOn
Eye diseases are a severe problem in India. Blindness rates are
much higher in developing countries (about 1.5 per cent) than in
developed countries (0.15 to 0.25 per cent). The major cause is
cataracts, a form of blindness that can be cured by replacing the
cataracts are estimated to occur in India every year. Beyond
cataracts, an estimated 20 per cent of India’s population is in need
of some form of eye care; however, half of the Indian population
cannot afford treatments. Aravind has developed the capability
to offer high-quality eye care at costs unmet by any competitor
worldwide. But this competitive position is not exploited to skim
the vast Indian ophthalmic market, but passed on to the company’s
patients. Aravind’s social value proposition is to offer medical
services to those who can afford them (40 per cent of patients)
and those who cannot (60 per cent of patients). This model is
based on cross-subsidization between paying and non-paying
business (cf. Mehta & Shenoy, 2011; Seelos, 2014).
25Business Models for Shared Value: Main Report
above all shows that BMfS development and implementation are interdisciplinary, complex, and systemic tasks. Further orientation for according business
model innovations is provided by so-called “archetypes” (Bocken, Short, Rana, & Evans, 2014), which are introduced in Section 6.
cOncept bOx 2: exemplary nOrmative requirements FOr designing and implementing bmFs (based On bOOns & lüdeke-
Freund, 2013)
exemplary nOrmative requirements FOr designing and implementing bmFs
The following normative requirements link the business model concept
to some broad and deliberately values-based (hence, normative)
principles that are proposed to guide transitions to, or the development
of, BMfS (hence, requirements). Their purpose is to show, in an
exemplary manner, that the underlying principles of traditional business
models such as profit maximization must be reflected and extended
to help business model developers with their search for alternative
ways of creating value.
The following requirements are neither mandatory nor exclusive. They
are starting points. Other scholars and practitioners might come up
with other sets of requirements, based on their particular contexts
and purposes.
1. CUSTOMER VALUE PROPOSITION (CVP)
Deliver customer value propositions in concert with balanced
and measurable positive eects on environment and society.
The CVP should provide measurable ecological and/or social value
balance customer and societal needs. Consider Tesla Motors, the
American producer of electric cars. Tesla’s CVP speaks to the
desire for high-end, cool, iconic cars, while it tries to contribute to
the transformation of national mobility infrastructures.
Companies should try to balance these different needs in future iterations
of their current and core business CVPs; new CVPs should follow the
idea of balancing multiple needs from scratch. Many companies are
post; however, it should be at the core of any CVP design.
CVP designers should consider that CVPs and their underlying
normative values are temporally and spatially determined, and so are
changing. Tesla plans to move from expensive high-end automobiles
to alternatives for average customers. They move from values of
exclusivity to values of daily needs, such as affordable safety.
2. BUSINESS INFRASTRUCTURE
Engage in partnerships to enhance resources and capabilities
for corporate sustainability and supply chain management.
The supply chain should involve and develop partners who take
responsibility for their own and the focal company’s stakeholders.
Textile manufacturers, for instance, face cost pressures due to
competitive end-user markets. This leads to working conditions
that are detrimental to employees and end-users, e.g. due to toxic
substances. BMfS developers should consider the “beginning” and
the “end” of supply chains.
The focal company should not shift its own (indirect) socio-ecological
burdens to its suppliers. A green or social image on home markets
should not whitewash negative impacts on the environment and local
communities in less visible areas of the supply chain or partner network.
Such shifting is a problem for most big energy companies, for example.
These criteria require companies to actively engage with their suppliers
and further partners to develop resources and capabilities for corporate
26Business Models for Shared Value: Main Report
sustainability and supply chain management. In some cases, such as
BoP markets, engagement might require cross-sector collaborations
with local and social enterprise organizations (Section 7).
3. CUSTOMER INTERFACE
Motivate and help customers account for the eects of their
consumption and consider an extended product responsibility.
The customer interface should motivate customers to take
responsibility for their own consumption, as well as for the focal
tries to provide as much information about their products as possible
to support customers’ decisions for or against a product. For
and methods.
The focal company should not shift its own (indirect) socio-ecological
burdens to its customers. While oil companies, for example, can
control the environmental performance of their own operations, the
largest impact of their products, in terms of greenhouse gas
emissions, occurs with their customers. The question is how
extensively these companies define their product responsibility.
Companies set up customer relationships with recognition of the
respective societal challenges of differently developed markets. Early
on, Hart and Milstein (1999) warned not to simply transfer the business
models of developed countries to the developing world. Satisfying
mere shopping desires is different from satisfying basic human needs.
4. FINANCIAL MODEL
Develop inclusive pricing models and align ownership models
with the need for “patient” capital; make use of triple bottom line
accounting and reporting.
Companies should try to develop pricing models that include as
many customer segments as possible, if the CVP is relevant to
them, instead of maximizing the profit margins of every offering.
Tesla, for example, works down from the luxury segment to average
customers. Aravind Eye Care Systems is even cross-subsidizing
patients.
model should thus allow for an appropriate distribution of financial
allocate financial costs and profits in different ways. Models range
from publicly listed corporations to social no-dividend models
(Section 7).
The accounting approaches used to control and manage performance
should account for ecological and social impacts. Numerous
frameworks and tools for triple bottom line accounting and reporting
are available today — however, approaches on the business model
level are still missing (Lüdeke-Freund, Freudenreich, Saviuc,
Schaltegger, & Stock, 2017, in press).
The requirements described in Concept box 2 are based on a more inclusive understanding of a business model and its relationships to the natural
environment, society, and economy. Standard concepts, such as the one by Osterwalder and Pigneur (2009) introduced above, are too narrowly
defined to account for these relationships.
stakeholders instead of customers only, or extending the business infrastructure element to include biophysical stocks — and embed them within the nested
systems of the natural environment, society, and the economy (cf. Marcus, Kurucz, & Colbert, 2010; Whiteman, Walker, & Perego, 2013). This embedded
view is gaining increasing attention, inter alia through the popular Planetary Boundaries framework developed by the Stockholm Resilience Centre (Rockström
27Business Models for Shared Value: Main Report
et al., 2009; Steffen et al., 2015). It emphasizes the “embeddedness” of a business model within its surrounding macro-systems, from which it takes inputs,
and to which it provides outputs and outcomes. These relationships are described in more detail in the Hourglass Model introduced below (Section 4).
3.2.3 HOW DOES A BMFS UNFOLD?
The business model should become a platform for the creation of business cases (Schaltegger, Lüdeke-Freund, & Hansen, 2012). It should allow for a
systematic and, to a certain degree, replicable, development and coordination of operational activities that contribute to sustainable corporate and societal
progress — at best in the form of strongly sustainable initiatives (Section 3.1.2) (Upward & Jones, 2016). But how does a business model for sustainability
unfold — i.e. how does it become effective once it has been designed? The short answer is: through improved business case drivers (as illustrated in Figure 7).
Figure 7: a bmFs aims at imprOved business case drivers (based On schaltegger, lüdeke-Freund, & hansen, 2012)
Every business model follows some form of implicit or explicit strategy, with the goal of improving a company’s performance (Casadesus-Masanell & Ricart, 2010;
Jones, 2016). A sustainability strategy
as launching a new green product or improving the livelihood of small-scale suppliers (e.g. Epstein & Roy, 2001; Kashmanian, Wells, & Keenan, 2011; Lozano,
SUSTAINABILITY STRATEGY
drivers for ecological, social, and
economc performance
SUSTAINABLE BUSINESS MODEL
activities targeting the improvement of
business case drivers
BUSINESS CASE DRIVERS
costs and cost reduction
risk and risk reduction
reputation and brand value
attractiveness as employer
and innovative capabilities
...
OPERATIONAL ACTIVITIES
Translates strategy and business model
into operations that develop, maintain,
or enhance business case drivers
GUIDES
SUPPORTS
DEFINES
REALIZE
DEFINES
28Business Models for Shared Value: Main Report
2015). A business case driver
reputation, or brand value, for example (Figure 7). Tesla Motors, for instance,
case driver. Allowing more and more customers with average income to buy a
Tesla is central to the company’s strategic goals of growing market share and
replacing fossil fuel-based cars (see Tesla case).
case bOx 3: tesla mOtOrs, usa
operational activities (e.g. Zott, Amit, & Massa, 2011). Sustainability-
oriented business modelling is thus about creating operational activity
systems that develop, maintain, and enhance the business case drivers
in theory, the translation of strategies into business models and activity
systems faces several practical barriers (Section 8.2) (e.g. Birkin, Polesie,
& Lewis, 2009; Hannon, Foxon, & Gale, 2013; Laukkanen & Patala, 2014).
Looking at the interrelations between strategy and business model reveals
two important causalities for consideration (Lüdeke-Freund, 2009):
First, when a company pursues a sustainability strategy, its
business model may have to change. The need to develop a
particular set of activities necessary for the realization of a strategy
may require changes to a given business model, or even a completely
new one, if the given model is too rigid and not adaptable to the
sustainability strategy in question (see Case box 3).
Second, business models may determine and constrain sustainability
strategies, and vice versa.
as adaptable to strategy, the possibility of business model innovation may be
limited. As a consequence, a given model may determine, or even limit, the
freedom of strategy making and business operations (see Case box 4).
Understanding and overcoming these and further barriers are tasks
of business model innovation, which thus becomes a new function of
corporate sustainability management.
case bOx 4: energy utilities, germany
tesla mOtOrs: creating unique
business case drivers
Californian electric car developer Tesla Motors pursues a radical
environmental vision and strategy to replace fossil fuels as a primary
energy source for mobility. To do so, Tesla develops unique business
case drivers, such as an increasingly competitive cost structure and
pricing model, a unique reputation as a technology leader, and
particularly innovative capacities. Tesla’s business model deviates
fundamentally from the traditional car-manufacturing model.
Partnerships with competitors such as Daimler and Toyota, or
complementors such as Panasonic, are remarkable features of
Tesla’s business model, as is the installation of an independent
supercharger network that could be used for free. Their business
model is radically different from the traditional industry paradigm,
as it goes far beyond car design, manufacturing, and sales. It is
based on a whole business eco-system ranging from battery
manufacturing to supplying green power at charger stations across
the USA and in a growing number of countries worldwide.
german energy utilities: hOw tO
OvercOme business as usual?
In an interview series with 18 German energy utilities, Richter (2012,
2013) found that incumbent energy utilities face massive challenges
in identifying and developing new approaches to creating, delivering,
that their established business models limit their innovative capabilities
in the search for new and more customer-oriented business models.
Used to large-scale installations and cost structures, German energy
utilities are well able to operate utility-scale clean energy facilities,
such as large solar parks or wind farms. But they miss the
development of small-scale technologies on the customer side,
such as residential solar installations, which are a crucial entry point
for the emerging smart-grid market (cf. Rodriguez-Molina, Martinez-
Nunez, Martinez, & Perez-Aguiar, 2014).
29Business Models for Shared Value: Main Report
3.2.4 WHAT ROLE FOR BUSINESS MODEL INNOVATION?
Business model innovation differs from process and product innovation
in that it is a more systems-oriented approach (e.g. Laukkanen & Patala,
2014; Peric and Djurkin, 2014; Rohrbeck, Konnertz, & Knab, 2013;
Sakao, Ölundh Sandström, & Matzen, 2009). While product innovation
— in itself difficult enough — involves related activities such as product
design and testing, business model innovation deals with complex activity
systems, bringing together tasks such as supplier identification and
recruitment, value proposition design, development of customer channels,
and revenue models (Breuer, 2013; Osterwalder & Pigneur, 2009;
Zott, Amit, & Massa, 2011). There is no straight line between process, product, and business model innovation. Often, one leads to the other, and
entrepreneurs and managers must decide whether they want to, or have to, innovate on the level of a single process, product, or service, or on the
level of the business model in which it is embedded. (This consideration is a central aspect dealt with in the Roadmap Model and its Business Model
Thinking framework in Section 5.2.)
Business model innovation covers incremental adjustments and radical redesigns (e.g. Lindgren & Taran, 2011; Mitchell & Coles, 2003; Schaltegger,
Lüdeke-Freund, & Hansen, 2012). The classification proposed in Table 2 illustrates a possible range of intensities. It distinguishes incremental and
radical changes to the overall value creation approach and whether these are associated with constant or new customer value propositions. The way
that customer value propositions are made and delivered might change without an effect on customers. (A constant customer value proposition could
be outsourcing supporting activities like advertising, booking, and settlement). Changes to the customer value proposition, however, have an immediate
effect on how customers experience an offering (e.g. switching from anonymous and mass-processed travel plans to individually customized journeys).
table 2: business mOdel innOvatiOn intensities (lüdeke-Freund, 2014; schaltegger, lüdeke-Freund, & hansen, 2012)
insight
Engaging in business model innovation is a deliberate decision.
Companies can always opt for other forms of innovation, but under
particular circumstances their choice should be the business model.
Integrated ecological, social, and economic value creation is likely
to require radically new business models.
CONSTANT CUSTOMER VALUE PROPOSITION (CVP) NEW CUSTOMER VALUE PROPOSITION
RADICALLY CHANGED
BUSINESS MODEL
Improvement
Changing more than half of all business model elements.
(e.g. shifting from manufacturing to licensing and virtual, i.e.
highly networked, operations)
Redesign
New CVP for the focal company and the customer.
(e.g. a global network of private hosts co-ordinated by
Airbnb; Tata’s Nano serving “scooter families”)
INCREMENTALLY
CHANGED BUSINESS
MODEL
Adjustment
Changing less than “half” of all business model elements.
(e.g. adding new partners to a company’s production
model; extending the number and quality of distribution
channels)
Adoption
New CVP for the focal company.
(e.g. the introduction of organic food in conventional
supermarkets as a reaction to increasing market shares of
green specialty stores)
30Business Models for Shared Value: Main Report
The reviewed literature suggests that more radical business model innovations allow for more intense business cases for sustainability. The case
examples of Tesla Motors, German energy utilities, and Aravind Eye Care System support this assumption. As business model innovation is about the
creation of activity systems that develop, maintain, or enhance particular business case drivers (Section 3.2.3), we can finally illustrate the “assumption
of radicalness” with a simple heuristic (Table 3).
table 3: business mOdel innOvatiOn and business cases FOr sustainability (schaltegger, lüdeke-Freund, & hansen, 2012)
INTENSITY OF BUSINESS
MODEL INNOVATION
EFFECTS ON ADDRESSED DRIVERS OF BUSINESS CASES FOR SUSTAINABILITY
ADJUSTMENT/ADOPTION Mainly, cost and eciency-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 are affected. Sustainability
issues are primarily perceived as risks leading to protective behaviour, while reputational activities are of a rather
cosmetic nature.
IMPROVEMENT Cost and eciency-oriented measures are pursued actively and partly linked to sustainability issues. Together
with sustainability-oriented risk management, this approach can require very fundamental 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.
REDESIGN 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 prots are improved by environmentally and socially
outstanding products and services, leading to not yet available value propositions. Cost and eciency-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.
31Business Models for Shared Value: Main Report
4. framing business models for sustainability — the
hourglass model
As a visual framework to structure and represent the major concepts that
have to be considered when analyzing or developing business models
for sustainability and shared value, we propose the Hourglass Model
elements. The term hourglass was inspired by the shape of the central
elements, which resemble the lower and upper bowls of an hourglass.
The Hourglass Model reflects one major finding from our review: that
sustainable business models are about considering the multiple capitals
that are required to create value as well as taking care of the many
stakeholders, beyond customers and investors, who are part of and
affected by value creation.
The Hourglass Model combines current research on sustainable
business models, as well as selected concepts from adjacent literatures,
notably social innovation (e.g. Mulgan, 2007), and the Integrated
Reporting (IR) framework developed by the International Integrated
Reporting Council (International Integrated Reporting Council [IIRC],
2013). The Hourglass Model is used to systematize and represent the
most important relations between the multiple capitals on which a
business model builds, the business model’s representation of value
creation, and the different forms of value offered to and perceived by
different types of stakeholders.
The Hourglass Model integrates three core concepts: (i) different
forms of capital, (ii) the business model concept, and (iii) a stakeholder
perspective on value creation. The explicit depiction of different capitals,
providing productive inputs, and value created for different stakeholders,
who receive different outputs and outcomes, is a means to move from
an organization-centred and narrow understanding of (financial) value
creation to an extended perspective of “total value creation” (cf. Garcia-
Castro & Aguilera, 2015). Our review reveals that the interrelations
shown by the Hourglass Model are recurrent and major themes related
to BMfS and shared value. To some extent, these are also distinctive to
this particular body of research.
Figure 8: the hOurglass mOdel
VALUE CREATION
Business
infrastructure
Customer
interface
Customer
value
proposition
Financial
model
Customers
Value created
destroyed
missed
Employees
Value created
destroyed
missed
Suppliers
Value created
destroyed
missed
Community
Value created
destroyed
missed
Environment
Value created
destroyed
missed
Others
Value created
destroyed
missed
Manufactured
Capital
Financial
Capital
Intellectual
capital
Social &
Relationship
capital
Human Capital
Natural
Capital
STAKEHOLDERS
CAPITALS
32Business Models for Shared Value: Main Report
To the extent that the proposed framework incorporates, formalizes, and
sheds light on concepts that are foundational and distinctive for BMfS
and shared value, the likelihood of offering an innovative and insightful
framework is increased. The following concepts are taken to constitute
the three core elements on which the Hourglass Model is based.
The stakeholders element helps in clarifying the notion of shared
value. Business models generally emphasize value creation for the focal
company (mainly in terms of profits) and its customers (in terms of the
benefits and utility accruing to them). But thinking rigorously about
business models for shared value requires considering all stakeholders
who are affected by a business model (broad categories include
customers, employees, suppliers, the local community, and natural
environment) as well as how they are affected. Companies may create
value for one stakeholder group while they destroy it for another. Beyond
the general and often unchallenged expectation that business models
create positive value per se, a responsible company accounts for the fact
that it may simultaneously destroy or ignore value opportunities and thus
neglect particular stakeholder needs (cf. Bocken, Short, Rana, & Evans,
2013; EY & IIRC, 2013; Short, Rana, Bocken, & Evans, 2012).
The business model element represents the architecture of
organizational value creation. Central to the business model is the
customer value proposition, which is delivered through customer
interfaces. Through its financial model, a company aims to
appropriate part of the total value added (cf. Chartered Institute of
Management Accountants, International Federation of Accountants,
& PricewaterhouseCoopers, 2013; Osterwalder & Pigneur, 2009). In
order to create, deliver, and capture value, companies perform certain
activities (and avoid performing others), and employ and build resources
such as people, technologies, information, and reputation. In doing so,
the company develops a business infrastructure based on the capitals
available to the organization.
The capitals element represents the different forms of capital, which,
according to the IR framework, provide inputs for any business model.
It shows that inputs to value creation processes are generally based on
natural, social (intellectual, relationship, human), and economic (financial,
manufactured) capital (cf. Association of Chartered Certified Accountants
& Netherlands Institute of Chartered Accountants, 2013). Capitals are
thus understood as “stocks of value” that can be transformed and
enhanced or destroyed through business activities.
The Hourglass Model is “held together” by an overarching relation
between stakeholders (here, including the natural environment) and
the capitals that serve as inputs to business activities. Every capital is
provided by a particular stakeholder (e.g. financial capital by shareholders,
intellectual capacity by employees, physical resources by the natural
environment, i.e. some steward). Since value creation means that these
inputs are transformed, and not used up, they inevitably accumulate with
particular stakeholders (e.g. financial profits for shareholders, intellectual
development for employees, cleaner air and water for the natural
environment). These relationships are indicated by the two-sided arrows
between stakeholders and capitals in Figure 8.
The Hourglass Model is proposed as a framework to identify and
clarify the most important relationships between the central concepts
required to depict and understand organizational value creation: capitals
as resource base, the business model representing value-creating
activities, and the network of stakeholders related to these activities.
We suggest asking for the sources of capitals and the consequences in
terms of positive and negative value creation for stakeholders, and thus
accounting for both negative and positive external effects, as a means
to support an orientation towards sustainability and shared value for
business and society.
33Business Models for Shared Value: Main Report
5. business model innovation for sustainability — a
roadmap model
Because we found no comprehensive management framework for business
models for sustainability and shared value in the reviewed literature, we
Therefore, Section 5 builds also on publications beyond the reviewed body
of sustainability literature. We can conclude that management frameworks to
motivate and guide sustainable business model innovation processes from
vision to implementation present a critical research gap (see Schaltegger,
Hansen, & Lüdeke-Freund, 2016, for a discussion of related research gaps).
This section is concerned with innovating a company’s business model
following sustainability and shared value principles. The proposed Roadmap
Model complements the Hourglass Model by expanding on the need to
devise a clear strategic roadmap for corporate sustainability management
and shared value creation. The overall Roadmap Model consists of two parts:
The Sustainability Strategy Roadmap (SSR) presented in Section 5.1, and
The Business Model Thinking (BMT) framework presented in Section 5.2.
table 4: new FramewOrks intrOduced in this repOrt
The Sustainability Strategy Roadmap (SSR) guides entrepreneurs and
managers from understanding their motivations to engage in sustainability
or creating shared value to defining a portfolio of strategic alternatives for
doing it and prioritizing among them.
Business Model Thinking (BMT) comes into play when sustainability or
shared value projects require new business rationales, i.e. when a whole
businesses, business units, or products require fundamentally different
value creation, delivery, and capture approaches.
Table 4 gives an overview of the new frameworks introduced in this report,
their purposes, and expected outcomes in practice. The Hourglass Model
(Section 4), SSR, and BMT are complementary frameworks. The former
helps in establishing a comprehensive picture of a business model for
sustainability and shared value, and the latter two propose a general
roadmap for its development.
HOURGLASS MODEL (SECTION 4) SUSTAINABILITY STRATEGY
ROADMAP (SSR)(SECTION 5.1)
BUSINESS MODEL THINKING (BMT)
(SECTION 5.2)
PURPOSE /
OBJECTIVE
A framework guiding managers to
take a comprehensive and integrative
perspective on value creation (multiple
capitals and multiple stakeholders),
which is consistent with the notions of
sustainable shared value creation.
A roadmap for sustainability strategies
guides managers to clearly communicate
their motives for sustainability, scanning
the environment for opportunities, and
portfolio of initiatives.
A framework guiding managers to
rethink the value creation, delivery,
and capture logic of this business,
integrating innovation orientations
(archetypes, patterns) and tools.
OUTCOMES A comprehensive understanding of
how a business model builds on and
contributes to diverse capitals, and
how it interrelates with its various
stakeholders — a precondition for
working with the SSR and BMT.
Strategic clarity and focus, and the
ability to align sustainability strategies
with business model innovation. Helps
in identifying internal and external
strategic opportunities.
Allows developing new business
models based on insights from using
the Hourglass Model and aligned to
strategic opportunities from the SSR.
It informs the design of new business
models as a discovery driven process.
34Business Models for Shared Value: Main Report
5.1 Sustainability Strategy Roadmap (SSR)
The Sustainability Strategy Roadmap (SSR) helps managers to identify
and prioritize opportunities for corporate sustainability and shared value
creation. A strategic roadmap supports directional consistency while
dynamic complement to the static Hourglass Model. The proposed SSR
builds on three fundamental insights from the received literature at the nexus
between strategy, innovation, and sustainability:
First, a strategic roadmap for sustainability and shared value is a
necessary, but not sucient, condition for ecient and eective
implementation. Having a clear strategic roadmap results in strategic
focus and the ability to efficiently define and communicate goals
and priorities within the firm. This benefit applies to both initiatives
that involve business model innovation and those that do not (e.g.
isolated product or process innovations). For those initiatives that
involve business model innovation, devising a clear SSR assumes
particular significance in that a business model is a reflection, or a
“manifestation,” of a firm’s strategy (Casadesus-Masanell & Ricart,
2010). Having a clear strategic roadmap will better equip managers to
make sure that strategy and business model are aligned.
Second, every strategic roadmap for corporate sustainability and
shared value creation requires decisions about the Why and What.
(1) Why is a company engaging in a sustainability or shared value
initiative and what is it expecting for itself (cf. Bansal & Roth, 2000)?
And (2) what are the strategically meaningful societal issues and
related business opportunities, and which ones should be prioritized?
Third, identifying issues and business opportunities can be
achieved through two complementary approaches (each one
entailing a particular thinking pattern).
in nature, based on logical reasoning and rather traditional problem solving
(Section 5.1.2). The second is an inductive approach, making deliberate
use of multiple iterations and trial-and-error learning (Section 5.1.3).
Figure 9 on the following page shows the SSR. In the next three subsections, we
explain each component of the SSR and provide questions managers can ask
to guide their thinking about corporate sustainability and shared value strategies.
5.1.1 SSR 1: WHY DO WE ENGAGE?
why a company wants to engage
in sustainability and shared value initiatives. The underlying motivation must
reasons for engagement, the literature points to three main motivations:
Improving competitiveness;
Gaining legitimacy; and/or
Ethical and moral considerations (doing the “right thing”).
initiatives and clarifying what they expect for themselves represents an
important precondition for identifying and prioritizing issues and related business
opportunities (e.g. Bansal & Roth, 2000; Burgelman, 1983; Chandler, 1962).
cOncept bOx 3: why — exemplary questiOns tO clariFy
strategic mOtivatiOns
why — exemplary questiOns tO clariFy
strategic mOtivatiOns
Competitiveness
1. To what extent do we invest and commit resources to
sustainability and shared value initiatives because of the
desire to improve our bottom line?*
Legitimacy
2. To what extent do we engage in sustainability and shared
value initiatives because this is what our stakeholders and
society in general ask us to do?
Ethics
3. To what extent do we invest and commit resources to
sustainability and shared value initiatives because of moral
considerations and out of the belief that this is the right
thing to do?
* Bottom line improvements can result from improved business
case drivers (Section 3.2.3) e.g.:
Cost and cost reduction
Risk and risk reduction
Sales and profit margin
Reputation and brand value
Innovative capabilities
Attractiveness as employer
35Business Models for Shared Value: Main Report
1. CLARIFY THE
GOALS
(WHY WE ENGAGE?)
4. DEVELOP
STRATEGIC ROADMAP
AS A PORTFOLIO OF
OPPORTUNITIES
2. IDENTIFY OPPORTUNITIES THROUGH CONTRASTING ANALYSIS
3. INCORPORATE STAKEHOLDERS THROUGH DESIGN THINKING
2.3 PRIORITIZE
COMPLEXITY
TIME
PERFORMANCE
POTENTIAL
LEARNING
POTENTIAL
SPAN OF
INFLUENCE
OTHERS
2.1 WHAT
OPPORTUNITIES
EXIST?
OUTSIDE-IN
Economic
Social
Environ-
mental
2.2 WHAT
OPPORTUNITIES
EXIST?
INSIDE-OUT
Core
Compe-
tencies
Key
Resources
3.1 ECOSYSTEM ANALYSIS 3.2 INTERVIEW AND OBSERVE
TO IDENTIFY UNMET NEEDS
OPPORTUNITY
1
OPPORTUNITY
2
OPPORTUNITY
3
OPPORTUNITY
n
05
0 5
0 5
Figure 9: sustainability strategy rOadmap: develOping a strategic rOadmap FOr sustainability and shared value
OppOrtunities
36Business Models for Shared Value: Main Report
5.1.2 SSR 2: FROM THEORY TO OPPORTUNITY:
ANALYTICAL DEDUCTIVE THINKING (ADT) PATTERN
The upper part of the SSR framework, here referred to as the “analytical
deductive thinking (ADT)” pattern, entails proceeding through logical-
analytical thinking to identify, prioritize, and select sustainability and
shared value opportunities. This process is labelled “deductive” because
it starts from “theory” (i.e. representations of issues and opportunities
in the sustainability and shared value space) and logically proceeds to
identify strategically meaningful opportunities — which requires clarifying
the Why (Section 5.1.1). The process rests on two fundamental ideas.
First, not all sustainability and shared value issues are equally
relevant to all rms. Their relevance depends on contingencies such
as industry context and the focal firm’s particular activities, the wider
socio-economic context, etc.
Second, not all initiatives are equally strategically relevant to a
rm. Different firms have different abilities to cope with sustainability
and shared value issues by virtue of their specific resources and
capabilities (see Case box 5).
The deductive thinking pattern rests on three main steps: (1) Defining the
What from an outside-in perspective; (2) defining the What from an inside-
out perspective; and (3) prioritizing initiatives on the basis of criteria of
strategic relevance.
Steps 2.1 and 2.2: What — Outside-in and inside-out
Firms can identify relevant issues and opportunities by applying a two-
step process. First, identifying issues and opportunities related to the
outside context (such as greenhouse gas, or GHG, regulations and
customer expectations in the case of the logistics sector; see Case
box 5); second, identifying issues and opportunities related to the
firm’s specific resources, capabilities, and activities (such as particular
technological capabilities to address the identified outside issues; see
Case box 5). Intersecting the two in an iterative process provides a list of
corporate sustainability and shared value issues and opportunities that
are relevant to the firm (cf. Porter & Kramer, 2006).
Step 2.3: Prioritize
This step builds on the principle that corporate sustainability and shared
the previous steps. By evaluating each initiative against criteria of strategic
relevance, managers will be better equipped to (i) prioritize across initiatives
and (ii) select the appropriate mix of initiatives (portfolio management).
Concept box 4 describes possible guiding questions.
cOncept bOx 4: priOritize — exemplary questiOns tO clariFy
strategic priOrities
priOritize — exemplary questiOns tO
clariFy strategic priOrities
Alignment: How aligned (distant) is a sustainability or shared
value initiative with (from) a firm’s core capabilities? Will it
enhance or devalue our capabilities?
Time: How much time will it take for benefits to materialize
(e.g. short term versus long term)?
Performance: What is the expected return in terms of (i)
economic benefits for the firm, (ii) gaining/retaining legitimacy,
and (iii) social and environmental value?
Learning: Will this initiative lead to returns in terms of learning
and acquisition of new capabilities?
Span of influence: Does the issue fall within the boundaries
of our area of influence? Can we successfully tackle this
issue relying on our capabilities, or do we need to co-operate
with others?
37Business Models for Shared Value: Main Report
strategic challenges and OppOrtunities in the lOgistics sectOr
The logistics sector is one of the key players in the global economy,
employment, and environmental impacts. Transportation contributes
about 9 per cent of global gross domestic product (GDP),
accounts for about 17.1 per cent of world fossil fuel consumption
(Organization of the Petroleum Exporting Countries [OPEC], 2012),
and is the second largest carbon dioxide (CO2)-emitting sector,
contributing 13 per cent of total greenhouse gas (GHG) emissions
globally (Organisation for Economic Co-operation and Development
[OECD], 2010). Therefore, the main drivers creating both challenges
and opportunities within the logistic industry are:
The regulation of carbon emissions;
Higher and more volatile fuel prices; and
Increasing environmental concerns of customers, employees,
investors, and other stakeholders.
The introduction of the Kyoto protocol motivated the commitment
of governments around the world to use various policies to reduce
emissions. The European Union, for instance, established a target
of reducing CO2 emissions from transportation by 60 per cent by
2050, with the goal of “zero-emission city logistics” by 2020 (World
Economic Forum [WEF], 2012). In order to achieve these goals,
governments are implementing, inter alia, traditional regulations (e.g.
(e.g. taxes and subsidies) (Deutsche Post [DP], 2010).
Although carbon footprint standards are still in development
(e.g. Carbon Disclosure Project, The Greenhouse Gas Protocol),
companies are increasingly interested in environmental impact
evaluation across their product and service life cycles. For example,
research by the Carbon Trust found that “67% of consumers in the
UK were likely to buy a low-carbon product, and similar trends are
seen across much of the EU” (WEF, 2009). Another motivating factor
besides regulation and concerned customers is fuel cost. These
lower their dependency on of fossil fuels.
A deductive thinking pattern applied to the logistics sector would
identify GHG emissions as a challenge and strategic issue that
interlinks different stakeholders, such as governments and
customers, as well as different motivating factors; for example
compliance and costs, to engage in corporate sustainability
initiatives. The following table provides exemplary strategic
opportunities that could be derived from this issue.
OPPORTUNITY DESCRIPTION
Clean vehicle
technologies
Introduce clean and environmentally efficient
technologies.
De-speeding the
supply chain
Optimized
networks
Improve network planning to ensure efficient
hierarchies.
Energy-efficient
buildings
Minimize emissions from operating activities.
Packaging design
initiatives
Reduce weight and volume of packaging.
Training and
communication
Provide training and engagement programs across
the organization.
Modal switches Transfer freight from air and long-haul road to
ocean and rail freight.
Reverse logistics/
recycling
Develop new offerings around recycling and waste
management.
Home delivery Develop new home delivery offerings.
Carbon offsetting Develop carbon-offsetting solutions for own
operations and clients.
case bOx 5: strategic challenges and OppOrtunities in the lOgistics sectOr
38Business Models for Shared Value: Main Report
5.1.3 SSR 3: FROM LATENT NEEDS TO OPPORTUNITIES:
DESIGN THINKING (DT) PATTERN
The lower part of the SSR framework describes the “design thinking”
(DT) pattern, which is offered as a complement to the “analytical
deductive thinking” (ADT) pattern in identifying opportunities for
corporate sustainability and shared value. We referred to this second
thinking process as “design thinking” to convey the idea that it stems
from ethnographic and design-thinking techniques (e.g. participatory
observations, interviews, and human-centred design techniques; e.g.
Brown, 2008). The DT is meant to assist managers in uncovering latent
needs, behaviours, and desires. Human-centred design aims to solve
the needs of real people — as opposed to the artificial “personas” found
in traditional market segmentation techniques coming from large-scale,
quantitative data or “theory” (as in ADT).
Starting with qualitative research into people’s existing needs, i.e.
stakeholder needs from a sustainability or shared value perspective,
allows strategists to create solutions that are desirable, feasible, and
viable. Participatory observations, interviews, and design thinking uncover
often surprising and inspiring individual stories, and unmet needs and
desires. These are rarely found in similar depth through deductive-
thinking patterns (e.g. Seemann, 2012).
Step 3.1: Ecosystem analysis
The first step is an ecosystem analysis to identify a firm’s exchange
partners in terms of primary and secondary, direct and indirect,
stakeholders, whose interrelations form a business ecosystem based on
value exchanges (Allee, 2002). We adopt the term ecosystem because
we would like to stress the potential value stemming from going beyond
traditional stakeholder mapping to include indirect stakeholders, who
may not directly interact with a firm, but who could play a critical role
from a shared value perspective. Their critical role can result from new
opportunities to create shared value, as well as their potential to hamper
or foster a given initiative because, for example, its benefits are unequally
distributed within the business ecosystem.
Step 3.2: Interview and observe
A description of the techniques to be adopted to conduct qualitative
research and participatory observation is beyond the objectives of this
report. Good references are available in the domains of user experience
(UX) and design thinking. Concept box 5 offers some guiding questions
to assist managers in reflecting on how to make their qualitative research
more valuable.
cOncept bOx 5: exemplary questiOns tO suppOrt inductive
thinking patterns
5.1.4 SSR 4: DEVELOPING A STRATEGIC ROADMAP:
DEFINING A PORTFOLIO OF OPPORTUNITIES
As shown above, deductive and inductive thinking can be used to
analyze a firm and its context in a complementary manner and in multiple
iterations. They are offered as a form of guidance to identify sustainability
and shared value issues and related opportunities. On the basis of
firm objectives (as captured by the overall motivation for engaging in
sustainability and shared value) and other strategic criteria (e.g. an
initiative’s complexity and implementation time), it is now possible to
evaluate and prioritize initiatives and create a coherent set. The set of
initiatives a firm decides to focus on provide a strategic roadmap for
sustainability and shared value. The view of a strategic roadmap as a
exemplary questiOns tO suppOrt
inductive thinking patterns (adapted
FrOm seemann, 2012)
Will you do ethnographic research to immerse yourself in a
person’s behavioural context to observe and be inspired?
How are you engaging research participants with your
concepts? Are they basic text and perhaps an image, or is
there another way to engage participants to increase the
quality of feedback?
Are you planning for a workshop, where you bring all
stakeholders together to do a collaborative synthesis of your
analytic results and qualitative stories? How are you engaging
multiple perspectives in interpreting and synthesizing findings?
39Business Models for Shared Value: Main Report
portfolio of initiatives opens up further opportunities for strategic thinking, such as portfolio management (e.g. Cooper, Edgett, & Kleinschmidt, 2001),
strategic complementarities (e.g. Milgrom & Roberts, 1995; for applications to business models see Amit & Zott, 2001), or modularity (e.g. Baldwin &
Clark, 2000). These ideas are beyond the scope of this report and can only be mentioned here; for further information see the referenced works.
An illustrative example of how the combination of inductive and deductive thinking can lead to business model innovation is Jaguar Land Rover and its
approach to closing material loops and involving multiple stakeholders to identify new value opportunities.
case bOx 6: jaguar land rOver, uk
jaguar land rOver: clOsing material lOOps and taking a multi-stakehOlder apprOach tO
redeFine value creatiOn
Jaguar Land Rover (JLR) is the UK’s largest automobile manufacturer.
It is built around two traditional British car brands: Land Rover, a
manufacturer of premium, all-wheel drive vehicles, and Jaguar, a premier
luxury sports car marque. Although JLR is associated with large, heavy,
and resource-consuming cars, the company made progress with its
responsible business program and its “whole lifecycle approach.” JLR
was awarded a Queen’s Award for Enterprise in Sustainable Development
in 2015 and was named Responsible Business of the Year 2013/14
by Business in the Community (Jaguar Land Rover, 2015a, 2015b).
JLR aims at reduced environmental impacts from its processes and
products across the whole life cycle, including use and disposal. The
company moved from steel to aluminum for two of its three main
vehicle platforms, which offers benefits such as weight savings and,
as a result, higher fuel efficiency and lower-use phase emissions. To
reduce the environmental impacts from aluminum, JLR is in the process
of developing a closed-loop supply chain. A closed-loop supply chain
manages its material flows in a way that allows repairing, reusing, or
remanufacturing products or components (e.g. cars, engines) or
recycling of otherwise wasted material (e.g. metal or plastic leftovers)
(see e.g. Guide & Van Wassenhove, 2009; Wells and Seitz, 2005).
Using waste aluminum and press shop offcuts can reduce the need
for virgin material by 50 per cent. Besides these and further
improvements, such as reducing waste to landfill by 75 per cent and
water usage per vehicle by 17 per cent (2013 compared to 2007),
emphasis is put on efficient car designs and a new generation of low-
emission engines named “Ingenium.”
The process of developing a closed-loop supply chain requires a full
lifecycle perspective, where collaboration with key stakeholders is
crucial. Therefore, JLR’s lifecycle approach goes beyond factory
boundaries: “Our 360° approach examines our products and operations;
as well as our work with suppliers, customers, employees, and wider
stakeholders — creating new partnerships and business practices”
(Jaguar Land Rover, 2015c). Setting up the closed aluminum loop
requires, for example, recruiting experts for lifecycle assessments (LCA)
and material scientists to develop new internal capabilities to examine
product life cycle carbon footprints and assess the effects of material
properties with regard to design and performance. Furthermore, a
close collaboration and agreement with Novelis, JLR’s main aluminum
supplier, was required to collect offcuts and scrap from manufacturing
and have it reprocessed and reshipped to the factory.
JLR also helped set up an innovative academic course, the Cambridge
Sustainable Value Chains. Some of JLR’s employees and supplier
employees from Novelis came together in this course to work on supply
chain solutions to close the aluminum loop. Further projects are put
in place to close the loop for plastics and other key supply chains.
40Business Models for Shared Value: Main Report
One of the most challenging things about full life cycle approaches is
the “human dimension,” according to Ian Ellison, Sustainability Manager
at JLR. For example, for the closed-loop supply chain to work, it was
important for Novelis to commit to recycled material investments, and
JLR to be prepared for waste aluminum back to Novelis, reversing the
traditional material flow — which has a lot to do with convincing people
to do things differently. Besides technical barriers, the strength of
personal convictions and routines should not be underestimated (e.g.
Chesbrough, 2010). Furthermore, “years ago, life cycle impacts and
fuel efficiency were not high on the priority list, but are definitely on
the list today, and among the top priorities,” says Ellison. This
development was also supported by changing customer expectations:
“Even customers who might be less concerned about the environment
will have aligned issues, such as distance between fuel stops and
improved performance from lightweight design, on their list. JLR’s
efforts towards more eco-efficient value creation and customers’
expectations fit well together.”
Finally, understanding the “value currencies” of different stakeholders
is seen as a key to success, according to Ellison. JLR understood the
importance of translating one form of value (e.g. eco-efficiency) into
different currencies for different stakeholders (e.g. range for drivers).
The car manufacturer thus started to analyze what its stakeholders
get out of its full lifecycle approach. JLR identified many stakeholders
in an extended mapping and involved them in collaborations and
partnerships. It was crucial to understand their language, their
contributions to JLR’s full lifecycle approach, and their benefits from
this relationship, expressed in different value currencies. These are
shown in the following table as contributions from stakeholders and
the value they obtain from JLR in return.
STAKEHOLDER CONTRIBUTION FROM STAKEHOLDER VALUE DELIVERED TO STAKEHOLDER
Government Provide research funding Compliance, jobs, exports
Customer Select our aluminum cars Fuel economy, lower CO2 tax
Purchasing Engage suppliers to recycle Reduced commodity costs
Finance Provide processes for closed loops Increased profits
Marketing and PR Promote closed-loop aluminum Easier sales, reputation
Manufacturing Separate scrap material Continuity of supply
Suppliers — press shops Separate scrap material separation Future business
Suppliers — aluminum Invest in infrastructure Long-term partnership
Shareholders Invest in enabling technology Higher returns, resilience
Employees Provide innovation, tenacity Satisfaction, job security
Mining communities Engage positively Jobs, responsible mining
Competitors Engage positively Collective responsibility
41Business Models for Shared Value: Main Report
5.2 Business Model Thinking (BMT)
The Business Model Thinking (BMT) framework is the second
pillar of the overall Roadmap Model. The SSR framework aims at
supporting strategic clarity on sustainability and shared value issues and
opportunities, and provides a view of related strategies as a portfolio of
initiatives. The Hourglass Model guides managers to elevate from that
perspective, embracing systems thinking and a stakeholder perspective
to value creation. The BMT framework adds a step to both.
It adds to the SSR framework an analysis of the extent to which
sustainability initiatives require business model modifications or even new
business models, or maybe none of these (“dimensions of innovation”
in Figure 10). It adds depth to the Hourglass Model, in the sense of
supporting business model analyses at a more detailed level, e.g. looking
at single business model elements such as partner networks and
customer segments (Section 3.2.1) (see Section 8.3 for an overview of
tools supporting Business Model Thinking in practice).
Figure 10: develOping business mOdels FOr sustainability
and shared value initiatives
In the following, we explain each phase of the BMT framework according
to Figure 10. It consists of three phases, from identifying the relevant
dimensions of innovation to engaging in business modelling.
5.2.1 BMT 1: IDENTIFY DIMENSIONS OF INNOVATION
step builds on the fundamental premise that not all shared value opportunities
organization, or business model (e.g. Massa & Tucci, 2014). While business
model innovation has the potential to become a source of above-average
value creation), it remains a very challenging innovation effort.
As Johnson, Christensen, and Kagermann (2008, p. 52) have noted, an “analysis
of major innovations within existing corporations in the past decade shows that
precious few have been business-model related.” Innovating a business model
1. IDENTIFY
DIMENSIONS OF
INNOVATION
2. MODEL AND IDEATE 3. MAKE
PRODUCT
ARCHETYPES AND
PATTERNS
FAST PROTOTYPE
BY EXPERIMENTING
AT THE PERIPHERY LEARN
DELIBERATE
BUSINESS MODEL
FRAMEWORKS
ITERATE
ADJUST
PROCESS
ORGANIZATIONAL
BUSINESS MODEL VALIDATE
42Business Models for Shared Value: Main Report
complexity. While it has the potential for transformative growth and exponential
returns for the innovator, it is a highly risky move that may involve changing the
& Hansen, 2012). Accordingly, a critical challenge for managers is to understand
when new business models are needed (Johnson, 2010; Johnson, Christensen,
& Kagermann, 2008). Managers should consider evaluating whether the same
opportunity could be captured by relying on less complex forms of innovation or
whether the business model level is involved.
How could managers know if an innovation effort is likely to require innovating
a business model? The answer to this question is non-trivial, among other
things because business model innovation cannot be fully anticipated
or planned (Amit & Zott, 2012; Massa & Tucci, 2014; Sosna, Trevinyo-
Rodríguez, & Velamuri, 2010; Zott, Amit, & Massa, 2011). Business model
innovation can result from a long-term, discovery-driven process that can
involve initial experiments, followed by constant revisions, adaptation, and
anticipating business model innovation, and those related to managing it (e.g.
Chesbrough, 2010), some indicators signal that certain sustainability and
shared value initiatives might require business model innovation.
Concept box 6, building on Nidumolu, Prahalad, and Rangaswami (2009),
offers some questions managers could ask to evaluate the necessity to
engage in business model innovation.
business mOdel innOvatiOn indicatOrs and guiding questiOns
Central challenge:
To find novel ways of delivering and capturing value, which will
improve a firm’s ability to profit from social and environmental
value creation.
Competence needed:
The capacity to understand what consumers want and to figure
out different ways to meet those demands.
The ability to understand how partners can enhance the value of
offerings.
Innovation opportunities:
Developing new delivery technologies that change value-chain
relationships in significant ways.
Creating monetization models that relate to services rather than
products.
Devising business models that combine digital and physical
infrastructures.
INDICATORS AND GUIDING QUESTIONS FOR
INITIATIVES REQUIRING BUSINESS MODEL
INNOVATION
Value creation:
Are we rethinking our overall value creation rationale, including
the customer value proposition, business infrastructure, customer
interface, and financial model?
Revenue streams and monetization mechanisms:
Will our revenue architecture change? Are we going to change
our mechanisms of monetizing our business activities (e.g. from
selling to licensing products)?
User-payers and multiple exchange partners:
Are we decoupling users from payers (e.g. providing the offering
for free to one group of beneficiaries while receiving revenues from
another group)?
cOncept bOx 6: business mOdel innOvatiOn indicatOrs and guiding questiOns (adapted FrOm nidumOlu, prahalad, &
rangaswami, 2009)
43Business Models for Shared Value: Main Report
5.2.2 BMT 2: MODEL AND IDEATE
This step involves using (i) business model frameworks; (ii) business model
archetypes or patterns; and iii) business model tools to understand the
business model innovation potential of each one of the ideas generated
(relative to opportunities for sustainability and shared value creation).
In this report, we understand business model frameworks as
representations of the general business model. (We use the plural
because there are several possible ways to represent a business model;
see Massa, Tucci, & Afuah, forthcoming.) Frameworks are obtained by
pointing to the key components of a business model. Business model
frameworks have three fundamental functions (Section 3.2). First, they
offer a “reference language” that fosters dialogue, promotes common
understanding, and supports collective sense making (cf. Doganova &
Eyquem-Renault, 2009; Zott & Amit, 2010). Second, by offering scaled-
down simplified representations, they allow for graphical representations
that support cognition and offer the possibility of virtually experimenting
with business model innovation. Third, they offer representations
— graphic, as well as written/textual — that allow managers and
entrepreneurs to articulate and instantiate the value of their venture
and to support the engagement of external audiences, so as to gain
legitimacy, activate resources, and foster action (Doganova & Eyquem-
Renault, 2009). The traditional literature on business models is rich in
such reference languages and representations. However, their systematic
analysis is beyond the scope of this report (overviews can be found in Al-
Debei & Avison, 2010; Wirtz, Pistoia, Ullrich, & Göttel, 2016; Zott, Amit, &
Massa, 2011). Three sustainability-oriented business model frameworks,
which at the same time can serve as innovation tools (see below), are
briefly introduced in Section 8.3.
Archetypes or patterns are understood here as ideal types —
descriptions of possible business models that are obtained by focusing
on the key distinctive aspects of certain families of business models.
Popular examples beyond business models for sustainability are the
freemium business model adopted by, among others, Adobe and
Dropbox; the razors and blade business model popularized by Gillette;
and the long tail business model of eBay and other platforms. The use
of archetypes or patterns is meant to support managers in reflecting on
how to transform a particular sustainability challenge — such as waste
energy in production processes or underserved low-income groups —
into opportunities such as efficiency gains or social value propositions
offered to neglected customer groups. Business model archetypes or
patterns can be used as reference points for the development of new
approaches to deal with such challenges. While an archetype is more like
a generic role model (e.g. efficiency-driven business models), patterns are
more explicit with regard to the details of these models (e.g. how to earn
money from increasing efficiency). This report contains a whole section
on this particular aspect of Business Model Thinking (Section 5.2).
Business modelling tools typically try to cover all phases of the
business model innovation process — from ideation to design, test,
and implementation (e.g. Frankenberger, Weiblen, Csik, & Gassmann,
2013). In contrast to frameworks as they are understood here, tools are
more focused on design and creation of new business models than on
description and representation. They often include a longitudinal dimension
which addresses the process of designing a business model, rather than
taking a snapshot of a business model. Our proposed distinction between
frameworks and tools is only one possibility for distinguishing between
among different approaches to modelling business models. As mentioned
previously, frameworks themselves can be used as tools, in particular in
an ideation phase. In ideation, frameworks may be used to generate ideas
for new possible business models by asking “what-if” questions related to
changing components of the described business model.
Frameworks and tools more specifically designed to think through
business models for sustainability have been provided by Upward and
Jones (2016) and Joyce, Paquin, & Pigneur (2015), for example (Section
8.3). While frameworks often define different business model components,
their relations, and functions (e.g. Al-Debei & Avison, 2010), a tool is a
practically translated and useful form of framework that can be used to
support innovation projects (e.g. Osterwalder & Pigneur, 2009). Section
8.3 introduces a tool that explicitly builds on ethnographic principles
and supports inductive thinking patterns, the Business Innovation Kit,
which can also be used to support sustainability-oriented business
modelling. Many other tools and frameworks exist. We contend that
tools and frameworks have different characteristics, for example by
virtue of the level of granularity, the specific components analysed, etc.
Therefore, we suggest that the choice of the framework or tool to be
used should be made in accordance with the particular purpose of its
application. Alternatively, we suggest experimenting with different ones
simultaneously in an ideation phase, going for quantity of ideas versus
quality, and progressing iteratively to identify both the most relevant tools/
frameworks and the most promising business model innovations.
44Business Models for Shared Value: Main Report
5.2.3 BMT 3: MAKE
Once ideas for business model innovations have been generated, they should move into implementation. However, due to the complexities of business
model innovation and its nature as a discovery-driven, trial-and-error process, it is critical to ensure learning before investments are made (Nidumolu,
Prahalad, & Rangaswami, 2009). Early learning may be achieved by starting small, learning fast, and scaling rapidly. Nidumolu, Prahalad, and
Rangaswami, break each step down into three phases: experiments and pilots, debriefing and learning, and scaling. We build on these insights and
suggest the following steps:
Define prototypes and pilots and quickly engage in experimenting at the periphery of existing business models. This step also involves conferring
authority for business model experimentation.
Ensure there are mechanisms in place to manage learning in the form of deliberate learning. These mechanisms are (1) experience accumulation (i.e.
the central, semi-automatic learning process by which operating routines develop), (2) knowledge articulation (the process through which implicit
knowledge is articulated through collective discussions, debriefing sessions, and performance evaluation processes), and (3) knowledge codification
(the process of developing formal tools, such as written documents, performance appraisals, reports). Deliberate learning is in contrast to the rather
passive process of learning by doing (cf. Zollo & Winter, 2002).
Iterate by adjusting until validation.
Keep initial investments small until concepts are proven; invest more substantially only when there is greater evidence that a particular idea will work;
and then be prepared to scale up with vigour.
45Business Models for Shared Value: Main Report
6. archetypes of business models for sustainability
This section introduces different “archetypes”
of business models for sustainability (BMfS).
Archetypes are typical representations in a
given context (e.g. the “evil witch” and the
“charming prince” are archetypes in fairy tales).
Here, the context is seizing business model
opportunities for sustainability and shared
value. As such, archetypes become a central
element of the previously described Business
Model Thinking framework (Section 5.2.2). We
introduce a set of archetypes, knowing that
their future range will evolve and deviate from
the types presented below.
6.1 Orientations for
Sustainability Innovation
An earlier review introduced an original range of
archetypes for BMfS (Bocken, Short, Rana, &
Evans, 2014). This typology was developed for
the following purposes:
To provide a way of organizing and
explaining business model innovations for
sustainability.
To define generic mechanisms for supporting
practical business model innovation
processes.
To define a research and practitioner
agenda beyond the more commonly known
approaches such as product-service
systems, microfinance models, etc.
To provide examples that explain and
communicate innovation orientations to
businesses to de-risk their business model
innovation processes.
Our review revealed a growing list of types of
BMfS, ranging from sustainability types (e.g.
Bocken, Short, Rana, & Evans, 2014; Boons
& Lüdeke-Freund, 2013; Clinton & Whisnant,
2014), circular types (e.g. Accenture,
2014; Bakker, Den Hollander, van Hinte, &
Zijlstra, 2014; Bocken, Rana, & Short, 2015;
ING, 2015; Wells & Seitz, 2005), to green
(e.g. Beltramello, Haie-Fayle, & Pilat, 2013;
Bisgaard, Henriksen, & Bjerre, 2012; FORA,
2010), and social types (e.g. Dohrmann, Raith,
& Siebold, 2015; Gaertner & Ishikawa, 2014;
Jenkins, Ishikawa, Geaneotes, Baptista, &
Masuoka, 2011). These types can be seen as
specifications of the more general archetypes
introduced in this section. We counted more
than 50, including overlaps and redundancies.
Archetypes provide practically useful
orientations for business model innovation if
they meet the following general model criteria
(Bocken, Short, Rana, & Evans, 2014): (i) they
must represent the underlying mechanisms
of sustainability-oriented business model
innovation and transformation; (ii) they need
to be clear, intuitive, mutually exclusive, and
explanatory, but not overly prescriptive; and
(iii) they should support entrepreneurs and
managers in dealing with the corporate
sustainability challenges of achieving relative
and absolute contributions to ecological and
social value creation (Section 3.1). As such,
archetypes can become a tool to support
innovation projects in practice.
6.1.1 MAJOR INNOVATION
ORIENTATIONS: ENVIRONMENTAL,
SOCIAL, AND ECONOMIC
The archetypes fit nicely in between high-level
orientations such as environmental or social
innovation, which provide values-based and
normative directions, and more operational
innovations in processes, products, and further
business model elements (Figure 11).
Figure 11: archetypes “mediate”
between high-level OrientatiOns and
OperatiOnal innOvatiOns
MAJOR SUSTAINABILITY
INNOVATION ORIENTATIONS
ARCHETYPES OF BUSINESS
MODELS FOR SUSTAINABILITY
INNOVATION IN PROCESSES,
PRODUCTS, AND FURTHER
BUSINESS MODEL ELEMENTS
IMPLEMENTING ARCHETYPES
46Business Models for Shared Value: Main Report
An earlier literature review of the relationships between business models and
three major orientations (Boons & Lüdeke-Freund, 2013):
Technological innovations, mainly aiming to introduce new
environmental technologies (“clean tech”).
Social innovations, addressing social issues, mainly in BoP contexts,
and also targeting behaviour change.
Organizational innovations to change dominant organizational and
economic paradigms that underlie business activities.
table 5: majOr OrientatiOns OF business mOdels FOr
sustainability innOvatiOns (bOOns & lüdeke-Freund, 2013)
Accordingly, the relationships between business models and sustainability
innovations depend on the focus of a company’s activities. These can
addressing environmental, social, or economic sustainability challenges
and the aim to create business cases through their solutions (Section 3.1).
Depending on a company’s primary normative goals, for example to reduce
sustainability innovations and the role of the business model differ (Table 5).
These innovation orientations are of course not mutually exclusive. In fact, they
often occur in mixed forms, as when socio-economic problems such as a lack
of market access in poor, rural areas can be solved through new technologies
or a new application of given technologies (e.g. mobile communications; Rashid
& Rahman, 2009). Our review revealed several studies at the intersections of
the different innovation orientations. Rich and revealing cases can be found in
BoP studies, for example (see GrameenPhone case, following page).
6.1.2 THE NEED FOR A TYPOLOGY OF BUSINESS MODEL
ARCHETYPES
Business models for sustainability take a triple bottom line approach to
interests (Upward & Jones, 2016). Businesses adopting such models may
be more resilient and competitive in the longer term by acknowledging
the interdependencies between their own operations and the contexts
in which they are embedded (Whiteman, Walker, & Perego, 2013). As
shown earlier, several authors take a business case approach to recognize
Porter and Kramer (2011) and Vogel (2005) highlighted the advantages
of a business case perspective, while others point to its theoretical and
practical limitations (Hahn, Figge, Pinkse, & Preuss, 2010).
By caring for their employees, companies can create not only a loyal and
steady workforce, but also ambassadors and future customers (think of
Henry Ford, who wanted to make sure that his employees could afford the
products they manufactured). Companies can secure their future supplies by
looking after the natural resources they rely on (e.g. soil, watersheds). The
development of BMfS can be an important driver for business cases and
resilience, as well as a sustainable development of society and economy.
Looking at the Hourglass Model (Section 4), we see that any business model
requires a sound foundation made of multiple capitals. Business models for
sustainability not only use and transform these capitals but also maintain or
even enhance them (Schaltegger, Hansen, & Lüdeke-Freund, 2016).
INNOVATION FOCUS ROLE OF BUSINESS MODEL
Environmental
(often technological
innovation)
“… sustainable business models with a focus
on technological innovation are market devices
that overcome internal and external barriers of
between technology characteristics and (new)
commercialization approaches that both can
succeed on given and new markets.” (Boons &
Lüdeke-Freund, 2013, p. 14)
Economic (often
organizational
innovation)
“Business model change on the organizational
level is about the implementation of alternative
paradigms other than the neoclassical
economic worldview that shape the culture,
structure and routines of organizations and thus
change the way of doing business towards
sustainable development; a sustainable
business model is the aggregate of these
diverse organizational aspects.” (Ibid., p. 15)
Social (often
purpose-driven
innovation)
“… sustainable business models enable social
entrepreneurs to create social value and maximize
models’ ability to act as market device that helps
in creating and further developing markets for
innovations with a social purpose.” (Ibid., p. 16)
47Business Models for Shared Value: Main Report
To support this move towards the development of sustainable business
models, through collaborative research at the University of Cambridge, we
developed a list of business model archetypes. These are typical examples
of solutions that contribute to building up business models for sustainability.
6.2 A Typology of Archetypes of Business
Models for Sustainability
major impacts of those innovations; however, as noted above, innovation
archetypes are often mixed and not of a unilateral kind (similarly, the seemingly
“fair queen” might also be an “evil witch,” as we learn from Snow White).
Archetypes with a largely environmental impact, often supporting and
driven by technology innovations, include:
1.
2. Closing resource loops.
3. Substituting with renewables and natural processes.
Archetypes with a largely social impact, often in support of and driven by
social innovation, include:
1. Delivering functionality rather than ownership.
2. Adopting a stewardship role.
3.
Archetypes with an impact on the economic aspects of how business is
done, often supporting and driven by organizational innovation, include:
1. Repurposing the business for society/environment.
2. Seeking inclusive value creation.
3. Developing sustainable scale-up solutions.
Table 6 and Figure 12 summarize the nine sustainable business model
of the archetypes, and Figure 12 shows a broad range of exemplary
grameenphOne: mOving FrOm “bOp 1.0”
tO “bOp 2.0” and beyOnd
Rahman, Amran, Ahmad, & Taghizadeh (2014) studied the case of
GrameenPhone, the leading telecommunications company in
Bangladesh, and its nationwide community information centre. They
found that the much-praised introduction of new technologies, such
as communication infrastructures, and new skills, such as business
training, can only be part of a necessarily more encompassing
strategy to overcome rural poverty: “Although treating people at the
BoP as producers offers them a way to earn a living and may help
them develop marketable skills, it may not free them from poverty,
for they typically just become just part of a supply chain.” (Ibid., p.
49). Taking care of the standard of living, providing access to valuable
of a more thorough BoP strategy. While the much-criticized “BoP
1.0” approach saw those in poverty as potential customers, “BoP
2.0” approaches try to integrate poor people as active producers,
i.e. active economic agents (e.g. London & Hart, 2011). However,
Rahman and colleagues point to the risk of simply integrating those
at the base of the pyramid into supply chains without really caring
about quality improvements in their livelihoods, personal skills, and
future prospects. They conclude: “From an organization’s point of
view, to embrace the BoP concept into the business strategy, a
company must restructure its business model” (Rahman, Amran,
Ahmad, & Taghizadeh, 2014, p. 50). To do so, a company must
combine technological innovation, organizational, and social
innovation approaches.
insight
The development of business models for sustainability can be an
important driver for business cases and business resilience, as well
as a sustainable development of society and economy.
case bOx 7: grameenphOne, bangladesh
48Business Models for Shared Value: Main Report
table 6: deFinitiOn and summary OF archetypes (cF. bOcken, shOrt, rana, & evans, 2014; plan c, 2014)
ENVIRONMENTAL SOCIAL ECONOMICAL
1. Maximizing
material and
2. Closing
resource loops
3. Substituting
with renewables
and natural
processes
4. Delivering
functionality, not
ownership
5. Adopting a
stewardship role
6. Encouraging
7. Repurposing
for society/
environment
8. Inclusive value
creation
9. Developing
sustainable scale-
up solutions
Short denition Do more with
fewer resources.
Generate less
waste, emissions,
and pollution.
Reuse materials
and products.
Turn waste into
feedstocks for
other products/
processes.
materials and
energy sources.
Provide services
that satisfy users’
needs without
their having to
own physical
products.
Proactively
engage with all
stakeholders to
ensure their long-
term health and
well-being.
Solutions that
actively seek to
reduce end-user
consumption.
Seek to create
positive value for
all stakeholders, in
particular society
and environment.
Sharing
resources,
knowledge,
ownership, and
wealth creation.
Inclusive value
generation.
Delivering
sustainable
solutions at a
large scale to
for society and
the environment.
Innovations
within this
archetype
Lean
manufacturing.
Dematerialization.
Increased
functionality.
Cradle-to-
cradle. Industrial
symbiosis.
Extended
producer
responsibility.
Cleantech.
Renewable energy
(e.g. solar, wind).
Biomimicry.
Rental/lease.
Pay per use.
Product-service
combinations.
Community
development.
Biodiversity
protection.
Choice editing.
Consumer
education.
Demand
management.
Slow fashion.
Frugal
businesses.
Social enterprises
corporations.
Hybrid models.
Net positive
initiatives.
Collaborative
platforms.
Collaborative
consumption.
Peer-to-peer and
sharing models.
Open innovation
platforms.
Incubators.
Slow/patient
capital.
Typical positive
impacts
Enhance
improve resource
use.
Save costs.
Reduce waste.
Turn waste
into value/new
business lines.
Generate new
revenue streams.
Reduces use of
waste, and
pollution.
Supports long-
term energy
supply.
Contributes to
“green economy.”
Can encourage
the right