A Critical Approach to Sustainable Business Models

A critical approach to sustainable business modelsAdam J. BockUniversity of Edinburgh Business School

Agenda

• Framing the discussion• What’s in the literature?• An entrepreneurial perspective• Some thoughts from research• Discussion

Framing

How do we understand “sustainable business model”?

1) Sustainable “business model”

• A business model with medium-long term viability, based on competitive strategy

• “The opportunity has an attractive, sustainable business model; it is possible to create competitive edge and defend it.” (Sahlman 1997)

• “Strategy analysis is thus an essential step in designing a competitively sustainable business model.” (Teece 2010)

2) “Sustainable business” model

• A model of a venture/firm with ecological sustainability attributes; a system for creating, describing, or measuring sustainability of a venture/firm.

• “A sustainable business model is a roadmap for achieving sustainability and deals with the issues and dynamic relationships of sustainability dimensions of the businesses.” (Ahmed and Sundaram 2007)

3) “Sustainable business” “business model”

• A business model of a venture/firm with ecological sustainability attributes

• “[F]irm-level sustainability and…sustainability for the system that an organization is part of.” (Stubbs 2008)

4) Sustainable “sustainable business” “business model”

• A business model of a venture/firm with ecological sustainability attributes and medium-long term viability

Forum for the future• “Commercially successful – why is this proposition valuable to

the customer and how can you deliver at a profit from it?”• “Part of a sustainable society. It is not possible to be a

sustainable business in an unsustainable economy.”• “Future ready. For instance, it will succeed in a world of rising,

volatile energy and commodity prices.”

http://www.forumforthefuture.org/blog/characteristics-sustainable-business-model

Mapping the field

Entrepreneurship

I/O EconomicsStrategy

Ecology /Ethics

1 3

2

4

1 Sustainable “business model”

2 “Sustainable business”model

3 “Sustainable business”“business model”

4 Sustainable “sustainable business” “business model”

Field theory

Strategy Entrepreneurship Sustainability

Theoretical focus Competitive position Opportunity Ecological

balance?

Metric Profitability Market exploitation Net systemic impact?

Feedback / monitoring

EBIT/ Market capitalization Growth / finance

Regulations, 3rd

party assessment, “Ecotopia”

Mapping the field

Entrepreneurship

I/O EconomicsStrategy

Ecology /Ethics

1 3

2

4

3 “Sustainable business”“business model”

Literature challenges

GOOGSCHOL

“Business model” “Sustainable business”Journal Cites Journal Cites

1 Ind Corp Change 1024 Business Strat Env 94

2 J Business Research 431 Sustainable Development 67

3 E J Info Sys 271 J Sustainable Tourism 55

4 Harvard Bus Rev 233 J Cleaner Production 58

5 Electronic Mkts 1616 J Org Change Mgmt 51

6 Strategy & Leader 123 J Business Ethics 44

7 Strategic Mgmt J 186 J Mgmt Education 48

8 Harvard Bus Rev 902 Business Strat Env 39

9 Int J Physical Distrib 155 World Development 35

10 CA Mgmt Rev 624 Info and SW Technology 40

Business model

Cognitive representationRealize opportunityDesign of organizational structures

– Resources– Transactions– Value

Zott and Amit 2001; Teece 2010; George and Bock 2011

Business model theory

Narrative mechanism (Magretta 2002)– Linked to resource acquisition/assembly (Lounsbury & Glynn 2001)– Sense-making and social construction (Downing 2005)– Consistent use in practice (George & Bock 2011)

Linked to value creation– In e-business (Amit & Zott 2001)– In bringing innovation to market (Chesbrough & Ronsenbloom 2002)

Match to strategy improves early stage firm performance (Zott & Amit 2008)

Business model innovation distinct from product/process innovation

– Higher returns (Christensen et al 2009)– Different antecedents, processes (Bock et al 2012)

Sustainable business

Multiple “metrics”• Social justice (Stead & Stead 1994)• Fair economic development (Moser 2001)• Ecological / environmental impact (Gladwin et al 1995)• Ethical business practice (Bradbury 2003)

But very limited validation“To date, we are not aware of any serious academic research into the methodology behind the construction of sustainable indices.” (Fowler & Hope, 2007, A Critical Review of Sustainable Business Indices and their Impact, Journal of Business Ethics)

Some inductively-driven thoughts

Case: Sustainable Spaces Recurve

“Recurve is powering the residential energy efficiency market by delivering the most advanced energy modeling, reporting and pricing software tools to help Home Performance contractors growand profit, while delivering whole house performance.”

Sustainable Spaces RecurveBusiness Model

Custom home energy efficiency audits and remodeling

Energy audit software for construction / retrofit firms

Resources Tacit knowledge• Residential construction

idiosyncrasies

Customer interaction

Data-driven heuristics

Transactions Direct consumer salesB2C serviceSelling-up

Direct business salesB2B relationship

Value Status / greenCost savings

Reduce costs of value-added green construction and refits

Some inductively-driven thoughts

Case: Metalysis

“Metalysis is a technology company that is scaling up the FFC Process for the production of titanium, tantalum and other high value metals…. The FFC process has a very low environmental impact and provides substantial environmental and sustainable benefits over conventional processes.”

Titanium TantalumBusiness Model

JV for large-scale ore processing

Pilot scale facility and scale-up to full production

Resources IP IP

Transactions Close relationship with suppliers and partner (no sales)

Close relationship with suppliers

Value Reduction in cost and environmental impact in high-grade Ti production

Significant reduction in cost of Ta for high-value applications

Thoughts

Recurve Metalysis

Business Model Increase energy-efficiency capabilities of construction firms

Cost efficient high-value metals ore processing

Sustainability Downstream impact on energy utilization

Reduction in carbon footprint and environmental impact

Reflect on prior research

BM change required to link sustainability goals with operational viability

No clear link between BM and sustainability

Implications for research or theory-building

Double-bottom line frameworks limited by operational parameters

Classification / characteristics of sustainability?

Sustainability / Social Value

Intent OutcomesProcess

Measure?Threshold?Motivation?

Boundary?Timescale?Reference?

Absolute vs. incremental?

Measure?

What is our measurement framework?

Research directions

Resources

TransactionsValue

• Org theory: How does the sustainability of business model components affect whether the firm is a “sustainable business?”

• Org theory: How are business model dominance structures linked to sustainability characteristics and the behavior of sustainable businesses?

• Strategy: How do the sustainability characteristics of business model components affect business model or firm-level sustainability and firm-level outcomes?

• Entrep strategy: How does business model innovation / change affect firm sustainability characteristics?

• Entrep mgmt: How do managers address the conflicting metrics for entrepreneurial and sustainability outcomes?

• Entrep behavior: What factors drive opportunity discovery and exploitation via sustainable businesses?

Entrepreneurial priorities

Opportunity theory– Profit/utility maximization (e.g. Friedman)– Alertness / prior experience (Kirzner; Shane)– Unsatisfactory description for emerging “social” entrepreneurs

Social entrepreneurship– All businesses are “socially embedded” (Davis 1973)– “Double” or “Triple” bottom line are not useful decision heuristics– Distinguished by: (Dacin, Dacin & Matear 2010):

– Individual differences – not well differentiated– Operating sector – not well differentiated– Processes/resources– Primary mission

Multi-level priority mapping?

Entrepreneurial priorities

Organizational Commitment

Locu

s of

Asp

iratio

n

Low High

Indi

v.Fi

rmG

roup

Indu

stry

Soc

ial

Source: George and Bock, 2012“Models of Opportunity”

Confederate Motorcycles

Organizational Commitment

Locu

s of

Asp

iratio

n

Low High

Indi

v.Fi

rmG

roup

Indu

stry

Soc

ial

Value

Employeedevelopment

New industrialDesign

Individualexpression

Confederate Priority Map

Source: George and Bock, 2012“Models of Opportunity”

More thoughts

• It’s great to have new constructs, but helpful if we can agree on defining characteristics and parameters

• The concept of sustainability tends to be used vaguely, without clear boundaries or boundary-conditions

• Challenges in measurement make “sustainability” a difficult construct to operationalize (unlike growth / profit)

Dacin, Dacin, & Matear. 2010. Social Entrepreneurship: Why We Don’t Need a New Theory and How We Move Forward From Here. Academy of Management Perspectives.

Thank you.