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D1.2 Version: 2.0 Date: 2013-12-20 Author: VTT Dissemination status PU Document reference D1.2 Towards sustainability governance in value networks Project acronym: SustainValue Project name: Sustainable value creation in manufacturing networks Call and Contract: FP7-NMP-2010-SMALL-4 Grant Agreement no.: 262931 Project duration: 01.04.2011 – 31.03.2014 (36 months) Co-ordinator VTT VTT Technical Research Centre of Finland (FI) Partners: POLIMI Politecnico di Milano (IT) UiS Center for Industrial asset management, University of Stavanger (NO) FIR Research Institute for Operations Management at RWTH Aachen University (DE) DIN DIN, The German Institute for Standardization (DE) FIDIA FIDIA (IT) Riversimple Riversimple LLP (UK) CLAAS CLAAS Selbstfahrende Erntemaschinen GmbH (DE) ELCON Elcon Solutions Oy (FI) UC University of Cambridge(UK) This project is supported by funding from the Nanosciences, Nanotechnologies, Materials and new Production Technologies Programme under the 7 th Research Framework Programme of the European Union.
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D1.2

Version: 2.0

Date: 2013-12-20

Author: VTT

Dissemination status PU

Document reference D1.2

Towards sustainability governance in value networks

Project acronym: SustainValue

Project name: Sustainable value creation in manufacturing networks

Call and Contract: FP7-NMP-2010-SMALL-4

Grant Agreement no.: 262931

Project duration: 01.04.2011 – 31.03.2014 (36 months)

Co-ordinator VTT VTT Technical Research Centre of Finland (FI)

Partners: POLIMI Politecnico di Milano (IT)

UiS Center for Industrial asset management, University of

Stavanger (NO)

FIR Research Institute for Operations Management at

RWTH Aachen University (DE)

DIN DIN, The German Institute for Standardization (DE)

FIDIA FIDIA (IT)

Riversimple Riversimple LLP (UK)

CLAAS CLAAS Selbstfahrende Erntemaschinen GmbH (DE)

ELCON Elcon Solutions Oy (FI)

UC University of Cambridge(UK)

This project is supported by funding from the Nanosciences, Nanotechnologies,

Materials and new Production Technologies Programme under the 7th Research

Framework Programme of the European Union.

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Project no. 262931

SustainValue

Sustainable value creation in manufacturing networks

Towards sustainability governance in value networks

Due date of deliverable: 2013-12-31

Actual submission date: 2013-12-20

Start date of project: 2011-04-01 Duration: 36 months

Organisation name of the lead partner for this deliverable: VTT

Revision 1.0

Project co-funded by the European Commission within the Seventh Framework Programme

Dissemination Level

PU Public x

PP Restricted to other programme participants (including the Commission Services)

RE Restricted to a group specified by the consortium (including the Commission

Services)

CO Confidential, only for members of the consortium (including the Commission

Services)

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Contents Foreword ................................................................................................................................................. 5

Workbook’s background: SustainValue project ...................................................................................... 6

Introduction: Setting the scene .............................................................................................................. 7

1 Creating sustainable value in networked manufacturing industry ................................................. 7

1.1 Why did we write this workbook? .......................................................................................... 7

1.2 What is it all about? ................................................................................................................ 8

1.3 How this book supports sustainable value creation in networks of manufacturing industry?

11

Part I: Analysing sustainability governance within a value network .................................................... 15

2 Defining key actors ........................................................................................................................ 15

3 Analysing relationships ................................................................................................................. 19

4 Defining joint strategic objectives ................................................................................................ 21

Overview of Part I and discussion ......................................................................................................... 24

Part II: Organising sustainability governance within a value network .................................................. 26

5 Determining roles, benefits and responsibilities .......................................................................... 27

6 Negotiating network structure and tasks ..................................................................................... 28

7 Coordinating tactic and operational actions ................................................................................. 31

Overview of Part II and discussion ........................................................................................................ 34

Part III: Developing sustainability governance within a value network ................................................ 35

8 Talking about joint actions as a value network............................................................................. 36

9 Strengthening trust through joint actions .................................................................................... 38

10 Thinking sustainability on network level .................................................................................. 39

Overview of Part III and discussion ....................................................................................................... 40

Conclusions: Sustainability in value networks ...................................................................................... 42

Terminology .......................................................................................................................................... 44

References ............................................................................................................................................ 46

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Document summary information

Authors and contributors

Initial Name Organisation Role

KV Katri Valkokari VTT Author

KP Katariina Palomäki VTT Author

JB Jakob Beer UiS Contributor

MHG Maria Holgado Granados POLIMI Contributor

CG Christian Grefrath FIR Contributor

PR Padmakshi Rana UC Contributor

CS Christian Schäperkötter CLAAS Contributor

DW Dirk Wagner FIR Contributor

Quality control

Role Who Date

Deliverable leader Markku Reunanen 2013-12-20

Project coordinator Teuvo Uusitalo 2013-12-20

Disclaimer

The content of the publication herein is the sole responsibility of the publishers and it does not

necessarily represent the views expressed by the European Commission or its services.

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Foreword

The overall goal of the SustainValue project is to develop industrial models, solutions and

performance standards for new sustainable and better performing production and service networks.

This workbook is the update for the deliverable 1.2 in Task 1.2. The goal of the task is to develop a

sustainability governance model for manufacturing networks. In present networked manufacturing

industry, however, the importance of intangible assets is growing continuously due to servitisation.

Therefore, the original title of the deliverable D1.2 has been changed in this workbook and thereby

the term “value networks” is used instead of the term “manufacturing networks”.

The final form of the D1.2 will be workbook-oriented, and this deliverable serves as the draft for the

workbook that will be finalised in the early spring 2014. The deliverable focuses on network-level co-

development methods and tools, while development strategies and transformation processes at

firm-level will be considered in D1.3. The D1.2 update targets to summarize the appropriate tools

and methods from other WPs of the SustainValue project, and emphasizes the network approach

within them. In other words, the updated 1.2 does not present new tools but gathers up the

network governance-related tools and supporting information for their utilisation at value network-

level. The theoretical backgrounds and the development processes of the presented tools and

methods have been described in more detail in the project’s deliverables and other publications (see

the reference list).

This deliverable proceeds as follows: In the introduction the concept of governance and the

SustainValue value network governance model are presented. Part I Analysing deals with analyses of

value network and broader business ecosystem around the network. Through these analyses

network actors are able to identify total sustainability impacts over the product life cycle and

requirements of all involved actors as well as create joint strategic sustainability objectives. Part II

Organising offers tools and methods for understanding and discussing the collaboration models,

network structure, roles and responsibilities both inside the value network and with other

stakeholders within business ecosystem. Part III Developing focuses on sustainable development as a

value network thus considering the value network as an entity, and discusses evaluating the

progress and future development needs. The practical challenges presented in the beginning of the

main parts and the key questions in Table 1 guide the reader to choose the suitable tool in the

particular situation.

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Workbook’s background: SustainValue project

This workbook and the tools presented are based on the work carried out in the ‘Sustainable value

creation in manufacturing networks’ (SustainValue) project. SustainValue is a collaborative EU

project co-ordinated by VTT Technical Research Centre of Finland. The project’s duration is three

years, and the work started in April 2011. The consortium consists of 11 partners, including research

organisations Politecnico di Milano, Cambridge University, the Center for Industrial Asset

Management at the University of Stavanger, and the Research Institute for Operations Management

at RWTH Aachen University; industrial partners FIDIA, Riversimple, CLAAS, and Elcon Solutions Oy;

and the German Institute for Standardisation (DIN).

According to the project’s vision:

“New forms of business models and value networks together enable knowledge-based

transformation of the manufacturing industry and improve all three dimensions of

sustainable value (economic, environmental and social)”.

The project rose to the challenge by aiming to develop industrial models, solutions, and

performance standards for new sustainable and better performing value networks. The research

contributes to extended product utilisation by creating new business models and value-added

services. The research focuses on 1) designing governance models and business architecture for

sustainable manufacturing networks, on 2) delivering a set of tools and methods for sustainable and

value-added business modelling and network analysis and providing a methodology for developing

sustainable solutions, on 3) developing a governing framework for sustainability-performance

standards across integrated value networks and verification processes, and on 4) testing and

validating the tools and methods in real-world use cases.

The research leading to the results presented in this workbook has received funding from the

European Community’s Seventh Framework Program (FP7/2007–2013) under grant agreement

n°262931. The authors wish to acknowledge the Commission for their support.

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Introduction: Setting the scene

1 Creating sustainable value in networked manufacturing industry

1.1 Why did we write this workbook?

Global distribution of work within manufacturing industry and growing importance of service

business alongside with other structural changes in networks have challenged the traditional

business models in Western countries emphasising value co-creation between network actors. Also

the growing complexity and shorter life cycles of products drive companies to collaborate in new

ways. Now the success of a firm depends on its strategic collaboration with other organisations that

have an influence on the creation and delivery of its services or products. Thus, the companies

cannot solve the complex sustainability challenges (Figure 1) alone. The concept of value networks

represents the paradigm shift towards the co-creation of multiple sustainable values between

network actors.

In the integrated and networked production setting much of the opportunity to address

sustainability rests on the enhanced network management. The focal companies of value networks

are now asked to consider also the sustainability performance in their entire supply chain to cope

with new requirements and interests growing from customers and other stakeholders. Advantages

of network coordination are considerable, and alongside with the opportunity to address

sustainability, they include also enhanced learning, more efficient use of resources, increased

capacity to plan for and address complex problems, greater competitiveness, and better services for

clients and customers (Provan & Kenis 2007).

Sustainable development is development that meets the needs of the present without

compromising the ability of future generations to meet their own needs (ISO 2010). Sustainability

combines social, environmental and economic viewpoints.

This workbook considers sustainable value co-creation in manufacturing industry. Sustainable value

networks and sustainable manufacturing are important cornerstones of the sustainable

development.

Sustainable value network is an organisational form which targets to gain future competitive edge

to all participants through interaction and collaboration, and thereby is able to balance the three key

aspects of sustainability (environmental, economic and social aspects).

Sustainable manufacturing can be defined as the ability to smartly use natural resources for

manufacturing by creating products and solutions via a network of suppliers, customers, partners

and collaborators that due to new technologies, regulatory measures and coherent social behaviour

are able to satisfy sustainability - economical, environmental and social objectives. Thus preserving

the environment, while continuing to improve the quality of human life and remaining financially

viable for the long term by returning adequate profits and growth (developed from Garetti & Taisch

2011).

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Figure 1. Key challenges that sustainable manufacturing must respond to.

Sustainability issues are recognised as strategically essential in business: According to Lacy et al.

(2010), 93 % of CEOs see sustainability as important to their company’s future success.

Strengthening brand, reputation and trust is the strongest driver and motivator for CEOs for taking

action on sustainability issues, with revenue growth and cost reduction, CEO’s personal motivation,

and consumer and customer demand following. Sustainable business practices and products are

now opening up new markets and sources of demand, driving new business models and sources of

innovation, changing industry cost structures, and, little by little, permeating to all elements of

operations. In this change, partnerships and collaboration have been acknowledged as a critical

element of companies’ approach to sustainability. (Lacy et al. 2010.)

This workbook presents a sustainable value network governance process and suggests relevant tools

to support businesses that want to be more sustainable and that want their network members to

develop alongside with them.

1.2 What is it all about?

Governance model addresses the rules, processes, metrics and organisational structures needed for

effective planning, decision making, steering and control. Governance can be discussed on

corporate-level and on network-level, from the point of view of internal or external governance.

Corporate governance involves a set of relationships between a company’s management, its board,

its shareholders and other stakeholders (OECD 2004). It provides the structure through which the

objectives of the company are set, and the means of attaining those objectives and monitoring

performance are determined. Originally, corporate governance has been built around the concept of

accountability but later on the key principles of good corporate governance have come to cover also

transparency, responsibility, and fairness. (Shkolnikov & Wilson 2008.)

The main differences between the company and network governance models are related to legal

aspects, decision making processes and control mechanisms. Networks consist of independent

actors, who have their own targets and decision making models, and that typically have limited

formal accountability to network-level goals. Thus, conformity to rules and procedures is not

•by producing effectively and efficiently and creating new services ensuring development and competitiveness through time

Economic challenges

•by promoting minimal use of natural resources (in particular non-renewable energy) and managing them in the best possible way while reducing environmental impact

Environmental challenges

•by promoting social development and improved quality of life through renewed quality of wealth and jobs

Societal challenges

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governed by binding regulations but is more voluntary and requires interaction between the parties

in order to build shared understanding and action agenda. Therefore, for intentional networks with a

distinct identity, governance is needed to ensure that participants engage in collective and mutually

supportive action, that conflict is addressed, and that network resources are acquired and utilised

efficiently and effectively.

Though corporate governance already extends into many areas of creating sustainable business,

broadening of stakeholder involvement in the decision making, and regulatory enforcement

mechanisms are needed (Shkolnikov & Wilson 2008; Bosselmann et al. 2008). Moreover, since

manufacturing activities are presently organised through networked processes within value

networks, new models for network governance are needed in order to ensure sustainable

development and performance also on the network level. These governance models should enable

clear identification of network actors and stakeholders who are influencing and can be influenced by

the sustainability of the product or service during its life cycle. In network governance, governance

structures are what bring actors to work together — the process, rules and norms by which the

network enables individuals to influence to network’s operations and decision making. Governance

involves the use of institutions and structures of authority and collaboration to allocate resources

and to coordinate and control joint actions across the value network as a whole (Provan & Kenis

2007).

As described above, network governance deals with many important questions (Figure 2): How is the

governance structure organised – is governance shared or does it have a leading organisation

(typically focal company) or perhaps a “third party” that works as an administrative organisation?

What are the governance mechanisms – is it governed by contracts or relational norms or how are

these combined? To which levels network governance, collaboration and decision making extends –

strategic, tactic, or operative issues?

Figure 2. Elements of network governance.

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The SustainValue governance model illustrates the sustainability governance within a value network

as a process that guides the activities of all involved actors towards sustainable development and

performance over product life cycle. The SustainValue governance model process integrates i)

requirements and commitment of stakeholders within a business ecosystem as well as ii) business

models and self-interest of value network companies.

The SustainValue governance model that presents the governance model of a value network (Figure

3Error! Reference source not found.) includes three main tasks – analysing, organising and

developing – that are in accordance with company level approaches but highlight the need for

multilevel network governance. The tasks also form the outline of this workbook.

Figure 3. SustainValue governance model.

Analysing (Part I):

In order to guide the activities of all involved actors towards the sustainability objectives, companies

must first define the key players inside the value network and the boundaries between the network

and business ecosystem. This network analysis requires picturing the connections (e.g. business

relationships, informal collaboration, ownerships etc.) between the actors. In order to the network

members to understand the network’s value for each member, their objectives, self-interests and

expectations should be covered. Concurrently, it is important to define the requirements and

expectations of the important stakeholders within the business ecosystem. Based on these initial

analyses companies are able to identify total sustainability impacts over the product life cycle and

requirements of all involved actors.

Organising (Part II):

The analysis of the involved actors and the understanding of their requirements direct the organising

and managing of sustainable development at the network level. Shared targets and collaboration

models are formed both inside the manufacturing network and towards other stakeholders within

the business ecosystem. In this phase an important aspect of the sustainability governance in value

networks is the connection between sustainable development and business models. Thus, aligning

An

alys

ing - Defining and

describing the key players of the value network and business ecosystem

- Identifying impacts over the product life cycle and the requirements of stakeholders within business ecosystem

Org

anis

ing - Forming shared

targets and collaboration models both inside the value network and with the stakeholders within business ecosystem

- Aligning business models and integrating processes according to sustainability objectives

Dev

elo

pin

g - Evaluating progress and setting new targets through shared action agenda

- Renewing actions, operations and business models towards sustainable value network

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business models and integrating processes according to the sustainability objectives should be

carefully considered.

Developing (Part III):

In order to ensure continuous improvement as well as renewal, the progress should be evaluated

through shared action agenda and new targets should be set transparently based on the

achievements. In this phase actors should renew actions, operations and business models together

to become truly a sustainable value network in the manufacturing industry. Whereas the first two

phases of the governance model concentrate on building up and developing the sustainable value

network so that it really fits and works together, this third phase focuses on the network as an entity

and thus also discusses its relationship with external stakeholders and environment and the whole

ecosystem. The future structure and performance of network is co-produced by involved actors and

thereby governing the network level activities is more or less self-sustaining and evolving.

Table 1 sums up the key issues of the value network governance process.

Table 1. Governance model, its phases, key questions and results.

Analysing Organising Developing

Key questions in each phase

With whom to collaborate, co-operate to co-create new ”shared value” from sustainability?

How are we able to control or influence the choices of all parties regarding to sustainability?

How to collaborate with our network members? What is the appropriate co-operation model according to our sustainability targets? How to define and agree on the decision making mechanism within the network?

How to set new targets and evaluate the progress through shared action agenda? How to constantly renew our network settings and collaboration models?

How to identify the impacts over product life cycle and broader to the business ecosystem?

Key results Understanding of the key players, relationship types with them, their roles and the value for each actor.

Understanding of the structure of the network, different roles within it, and of the possibilities to affect each other and sustainability objectives. Alignment of different business models and building base for new, sustainable business opportunities.

Understanding of the network as a collaborative entity, of the integration of formal and informal governance, and of the vision of future development needs.

1.3 How this book supports sustainable value creation in networks of

manufacturing industry?

This workbook has been developed first of all for managers that are involved in companies’

sustainability and corporate responsibility management and for consultants and auditors that work

in the field. The reader could be a representative of the focal company in a network, and thus have a

special view to the business and also the interest to develop the network. This workbook does not

aim to describe the steps for building up a new network “from scratch” but presents important

perspectives and tools for developing an already established network towards a sustainable value

network. The workbook is developed especially to the needs of business-to-business networks in the

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(European) manufacturing industry. Its focus is on strategic and tactic governance, and thus

operational issues (e.g. reporting, measuring) are not covered.

The workbook takes the perspective of a focal company, and focuses on value networks and their

governance thus emphasising value network members and interaction between them but excluding

internal stakeholders (owners, employees etc.) and detailed discussion on external stakeholders in

the broader business ecosystem. Thus the workbook distinguishes those network members that

have a business relationships with each another (suppliers, customers, service providers etc.) from

those other external stakeholders with which the relationship is not based on direct business

relations.

With this focus and definition as the foundation, the following figure (Figure 4) presents the network

governance model on a more detailed level. In each main stage of the network governance process,

the work starts with making decisions on the governance structure, then proceeding to issues

related to governance mechanism, and finally to discussing collaboration of the network:

- In the analysing phase, the aim is to create joint strategic sustainability objectives within the

value network based on analyses and understanding of interests of all involved actors (both

the network and stakeholders).

- In the organising phase, the network actors agree on organising (like network structures,

roles, responsibilities) within the network in order to be able to coordinate the actions.

- In the developing phase, the network actors are continuously working together to gain the

joint objectives, and also evaluating the progress and required changes.

Figure 4. Value network governance: Elements and process.

Figure 4 outlines also the structure of this workbook. Each element is further discussed in the

chapters that present the important issues and steps and tools that help in the strategic governance

of the network. The following table presents and shortly describes the workbook’s tools and check

lists.

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Table 2. Table presenting the workbook’s tools and check lists.

Chapter Tools and check lists Description

Par

t I:

2. Defining key actors Network picturing tool A tool for recognising key players broader in

the business ecosystem and more specially

the value network members participating to

the life cycle of products or services

Value mapping tool A tool for identifying potential stakeholders

and for defining the sustainability priorities

3. Analysing

relationships

Relationship analysis Analysing the relationships (type of the

relationships, sustainability-related objectives)

with value network actors and other

stakeholder groups

Supplier evaluation matrix A tool for searching and evaluating possible

suppliers

4. Defining joint

strategic objectives

Maturity assessment for

network conditions

Elements and a set of questions for assessing

the relationships between actors and the

network effectiveness

Sustainability matrix A tool for evaluating and coordinating

interests and sustainability objectives of

stakeholders, e.g. in supplier selection

Par

t II

:

5. Determining roles,

benefits and

responsibilities

Actor – contribution –

benefit check list

A check list for discussing roles, contribution

and benefits of each stakeholder group

6. Negotiating

network structure

and tasks

Collaboration models,

network management tasks

check list

Models and a check list for making decisions

on the structure of the network and on how

activities are organised

7. Coordinating tactic

and operational

actions

Steps for aligning business

models

Steps that guide the aligning of the business

models of network actors

Sustainable business model

element archetypes

An approach for selecting business model/s

that deliver business model innovation for

sustainability

Par

t II

I:

8. Talking about joint

actions as a value

network

Shared action agenda for the

future development of value

network

Important steps for the development of the

value network as an entity

Strategic roadmapping tool Identification of obstacles, solutions and steps

for future development, and the shared

targets and vision

9. Strengthening trust

through joint actions

Relationship – interaction

matrix

For describing the evolvement of relationships

10. Thinking

sustainability on

network level

Corporate sustainability

continuum

Supports in framing of the present situation

regarding to sustainable development, and in

studying the future paths

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This workbook presents examples on how the selected tools could support sustainability governance

within a value network. It needs to be pointed out, however, that the tools can be adapted to

different purposes and may be utilised in more than just one phase.

Each part of workbook works independently, and thus the tools and methods of the workbook do

not need to be used one after the other. The practical challenges presented in the beginning of the

main parts and the key questions in Table 1 guide the reader to choose the suitable tool in the

particular situation.

Introduction’s background in the SustainValue project:

Palomäki, K., Reunanen, M., Valkokari, K. & Valkokari, P. 2011. Sustainability gaps and stakeholder

requirements. D1.1, SustainValue project.

Valkokari, K., Valkokari, P., Reunanen, M., Palomäki, K. & Amirmostofian, A. 2012. Towards

sustainability governance in manufacturing networks. D1.2, SustainValue project.

Holgado Granados, M. & Macchi, M. 2012. A reference business model architecture for sustainable

manufacturing products, services and processes. D1.3, SustainValue project.

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Part I: Analysing sustainability governance within a value network

Figure 5. The focus of Part I: Analysing.

Part I describes the analysing phase of the sustainability governance process. In this phase, it is

important that the organisation defines the key players and their roles inside the value network but

also in the broader business ecosystem. The phase proceeds from defining the key actors to

analysing the relationships with the identified actors, and to describing, aligning and developing new

strategic sustainability objectives with the actors. For this e.g. network picturing or value mapping

are exercises to start with. Forming shared targets as such takes place in the following phase but

partly these two phases overlap, and the work should already be started at this phase. Based on

these initial, company-centric analyses companies are able to proceed to the next phases of the

governance model, organising and developing within the value network.

Practical challenges:

Recognising the value network actors and the key stakeholders in the business ecosystem

Understanding formal and informal relationships and their strength and value from the viewpoint

of sustainability

Describing and aligning strategic objectives

Communicating within the value network and with stakeholders in order to create shared

understanding and true engagement

Tasks of the phase:

• Defining key actors (both value network and stakeholders)

• Analysing relationships

• Defining joint strategic objectives

2 Defining key actors

In a traditional value network within the manufacturing industry, suppliers, lead producers (typically

focal company) and customers can be defined as the most typical roles. Still, the roles and operation

models are changing towards more collaborative processes and thereby different partnerships as

well as roles of service providers and integrators are emerging within value networks. In addition to

value network members, company’s business ecosystem includes various stakeholder groups that

An

alys

ing - Defining and

describing the key players of the value network and business ecosystem

- Identifying impacts over the product life cycle and requirements of stakeholders within business ecosystem

Org

anis

ing - Forming shared

targets and collaboration models both inside the value network and with the stakeholders within business ecosystem

- Aligning business models and integrating processes according to sustainability objectives

Dev

elo

pin

g - Evaluating progress and setting new targets through shared action agenda

- Renewing actions, operations and business models towards sustainable value network

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influence and are affected by the company’s actions (see Figure 6), and also the interests of these

external stakeholders should be considered.

The aim of this phase is to define the key actors in the organisation’s value network and

stakeholders in its business ecosystem (Figure 6), and their roles in order to recognise with whom to

collaborate to create shared value.

Figure 6. Company’s business ecosystem and value network (Koivisto et al. 2004).

Network picturing tool helps in recognising the key players broader in the industrial sector and

more specially the value network members participating to the life cycle of products or services.

Furthermore, the relationships and also informal linkages between the actors can be described. In

order to recognise other important actors than the present business partners (value network

members), the vertical and horizontal dimensions of networks should be distinguished (Figure 7).

This helps also define the network position of the focal company.

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Figure 7. Network picturing tool (modified from Valkokari et al. 2004).

A network picture is a starting point to represent network actors, links and their resources, like

competences and intellectual property (IP). It is important to figure out company’s negotiation

position related to possible collaborators – suppliers, partners, customers as well as stakeholders.

Network picturing works as a ‘sense-making’ device, and consequently to shape managerial

decisions, actions, and evaluations regarding the networks dimensions and the network position of

the focal company.

Network picturing supports shared sense-making process when it is done together at company or

even network level. In such a workshop the participants are able to create shared understanding

about their relationships with other network members and also to recognise if there are links

missing between them and the key players of their business environment.

Define the unit of analysis (i.e., the business unit, company, or network). The focus is on

the key players (network actors) participating to the life cycle of products or services.

Identify the network actors and place them in the vertical and/or horizontal network

dimensions.

Recognise the role of network actors (such as subcontractor, supplier, partner, service

provider, etc.) and consider your relationship to them, include also informal relationships

between the actors (see also Chapter 3, Analysing relationships).

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Value mapping tool helps in identifying potential stakeholders in the business ecosystem and within

the value network and defining the sustainability priorities that will assist in exploring the new

sustainable value proposition. A clear understanding of the purpose of the organisation and of the

sustainability and target positions for the future helps in determining the sustainability priorities.

Value mapping tool supports in this.

Figure 8. Value mapping tool (Short et al. 2012, Bocken et al. 2013).

The value mapping tool supports exploring, mapping and analysing the relationships and exchanges

between the stakeholders through mapping the current value, value destroyed and missed and

value opportunities. This is carried out to develop opportunities for new sustainable value

propositions from a system perspective without being firm-centric. Here, every value can be

illustrated for every stakeholder to get an easy overview of changes for each stakeholder. In case co-

operation partners for the new service are needed, they can be identified by this value mapping tool

as well.

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Step 1 – Setting the scene

Decide the unit of analysis (product/service, business unit, company or an industry)

Add or modify any missing stakeholders (can be done based on the results of network picturing)

Identify the business purpose of the unit of analysis (yellow star) Step 2 – Map the value (follow the spiral, clockwise)

Current value captured for each stakeholder

Value missed and destroyed for each stakeholder (use different colour post-its to distinguish values)

Step 3 – Generating solutions

Eliminate value destroyed - where is the conflict between stakeholders? How might it be resolved?

Look for ways to utilise value missed

Explore new value opportunities – extending the value proposition, shifting to higher value added

Use of the tool and the design of workshops should be adapted to the size and complexity of the

business. For more complex businesses it may be desirable to focus on specific business units or

product lines to ensure the process is manageable. To maximise the potential of the tool,

representatives or suitable proxies for each major stakeholder group should participate in the

process to solicit broad perspectives on value.

This tool provides a structured approach for entrepreneurs and business managers to gain a more

complete understanding of the value proposition of the company, and to explore opportunities for

transforming the value proposition towards more sustainable solutions.

3 Analysing relationships

After the key actors in the network have been identified, the identified actors, connections with

them and their sustainability-related objectives should be analysed (Relationship analysis,

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Table 3). The first step in this phase is to recognise and distinguish those actors with which the

organisation has a business relationship that can be controlled e.g. with business contracts, and

actors with which influencing takes place for example through shared projects, involvement in

programmes, and external communication. Thus, also the business relationships have various forms,

for instance some of the suppliers can be considered as partners where as others are classified as

sub-contractors – similarly also the relationships towards customers have different forms.

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Table 3. Analysing the relationships with different value network actors and stakeholder groups.

Actors Connections Objectives related to sustainability

Focal company Business relationship with

direct suppliers and

customers

Fulfilling orders, ensuring economic

performance

Defining and monitoring environmental and

social performance criteria

Customers Business relationship Collaboration and strategic partnerships

Life cycle services

Direct suppliers

(=supply chain

members)

Business relationship

(including both

partnerships and arms-

length relationships)

Cooperation and integration for sustainable

performance

Fulfilling environmental and social criteria

Other stakeholder

groups

(government,

customers, NGOs, etc.)

Exert pressure and offer

incentives for focal

company as well as other

supply chain members

Fulfilling additional (normative/ethical)

stakeholder requirements of

environmentally and socially extended

value network performance

Relationship analyses can be done internally within the focal company, though discussion with

network members is very useful as it may help to clarify their interests, objectives and expectations.

It is important to have a broader insight to networked business environment and figure out also the

actors who are not directly involved to company’s value creation process. For instance, exploring

the business environment of customer as well as defining customers of customers might offer new

insights to the sustainability as well as to the offering of the network.

Because of their network position focal companies have more power over their suppliers than over

their customers. Therefore sourcing companies typically have different tools for evaluating their

suppliers and guiding their development work, also including sustainability issues. Supplier

evaluation matrix is a tool for searching and evaluating possible suppliers (to operate as value

network members). When making the decision between the possible suppliers, it is important to

compare their characteristics such as their resources, competences, and commitment related to co-

operation. Table 4 shows an example of a supplier (network member) evaluation matrix. The criteria

according to which a decision is made in the end are case-specific, and should be aligned with the

strategic objectives of the sourcing company.

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Table 4. Supplier evaluation matrix.

In addition to evaluating suppliers, also the identification and categorisation of external stakeholders

is a practice that should be considered in this phase. Stakeholders may be categorised e.g. according

to three main attributes - power, legitimacy and urgency - they hold relative to the relationship with

the focal company and other network members. The salience of a particular stakeholder to a

company is low if only one these three attributes is present, moderate if two attributes are present,

and high if all three attributes are present. Thus the company should, at least, identify those

stakeholders that are most important for it and that hold the combination of all of the three

attributes, the so called definitive stakeholders. (See Mitchell et al. 1997.)

4 Defining joint strategic objectives

After the focal company has identified its network’s key actors, other stakeholders and their roles as

well as analysed its relationship with each stakeholder group, analysing phase proceeds to the

organising phase. In this phase, network actors describe and align their strategic objectives together.

This is an important step for an actor itself and for the sustainable development within the network.

Communicating with stakeholders and within the value network is crucial in order to create true

engagement to the joint strategic objectives. The following figure (Figure 9) describes how the

different level objectives influence and guide each other.

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Figure 9. The interdependency of strategy and objectives on the value network and network actor level.

Maturity assessment for network conditions can be utilised to create shared understanding about

network’s present sustainability level and development needs. It proposes three elements –

objective alignment, capability matching and partnership health – that can be used for assessing the

relationships between actors in a network, and that together characterise network effectiveness.

The maturity assessment model considers also contracts, a formal governance mechanism, as an

instrument through which actors’ commitment towards sustainability can be assessed and practices

can be agreed. Moreover, this model and the related questions bring out many other concrete issues

that network actors need to discuss and decide on.

Objective alignment describes the match between an organisation’s objectives and the objectives of

potential network members, and thus it focuses on how well organizations are able to align their

organisational objectives with their value-adding collaborators to find common ground for progress

in sustainable business development. Capability matching describes the ability to deploy resources,

skills, competences/abilities and experiences of organisations for collaborative purpose. Partnership

health indicates the condition or status (e.g. the level of collaboration) of the mutually beneficial

relationship between two or more members within a network.

Figure 10. Network condition elements.

Objective alignment

Sustainability objectives of contract partners

Criteria for sourcing and service contract decisions

Contract design & objective alignment

Life cycle thinking in contract design

Capability matching

Assessment of contract partners’ capabilities

Technological capability

Resource availability and accessibility

Knowledge base

Collaboration capability

Partnership health

Knowledge, information and data sharing

Network level processes and division of work

Cost and benefit sharing

Decentralized – centralized decision making

Relationship development

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These elements and their sub-elements can be utilised in analysing the current state in a network as

well as in setting targets towards sustainable development at the network level, thus providing also

a roadmap for actions. Relating to each of the elements, the following list of questions supports this

assessment:

Questions regarding objective alignment:

To what extent are sustainability objectives defined and utilised by the company’s network

members?

Are there any measures in place to align sustainability objectives of network members with

the company’s sustainability objectives?

Do sustainability objectives of network members take into consideration a variety of

stakeholders besides shareholders?

What are the criteria – besides economic efficiency – that sourcing and service decisions

are based upon?

Do contracts with network members take into account possibly diverging or conflicting

objectives with the company?

How are contracts designed to allow for objective alignment with network members?

To what extent are life cycle considerations made in contracts design/terms with network

members?

Questions regarding capability matching:

Are measures in place to assess the capabilities of the network members across the

network?

Do the firm and its network evaluate environmental and social impact when deciding to

invest on technologies and/or equipment for the manufacturing process?

How are technologies and equipment used in the value network, managed and evaluated

regarding their environmental and social impacts?

Are there initiatives/processes to configure and coordinate resource availability/

accessibility?

To what extent are the initiatives regarding training and know-how defined, managed and

improved to develop the knowledge base across the value network?

Which are the initiatives/methods for collaboration across the value network and to what

extent are they implemented and improved?

Questions regarding partnership health:

How is the knowledge, information and data sharing organized between the network

members?

To what extent the network level process and the division of work (e.g. roles and

responsibilities) are defined and agreed between the network members?

To what extent cost and benefit sharing is agreed (or transparent) between the network

members?

How is decision making criteria agreed between the network members?

How do the network members agree on relationship and its development needs?

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Sustainability matrix is another tool for evaluating and coordinating interests and sustainability

objectives of stakeholders, and can be used e.g. in supplier selection, customer communication as

well as considering collaboration initiatives within business ecosystem. The interests of various

stakeholders to strategic sustainability key issues are evaluated and presented with a colour scale in

the matrix (key actors – key issues). This is an exercise that which the assessing company can carry

out on its own.

Figure 11. Sustainability matrix (modified from Timlon 2011; Carroll 1991).

Overview of Part I and discussion

After this governance process phase the networking company has recognised they key players in its

networked business environment, relationship types with them, their roles (network members and

stakeholders) and the value for each actor. In other words, the company has a better understanding

with whom and how it can collaborate in order to develop sustainable value.

Using the tools presented in Part I in collaborative development work within a value network is at

the same time communicating with the network actors and stakeholders, sometimes even involving

the building up of totally new connections. Many of the tools can be, or even should be, used in a

workshop kind of setting where the focal company jointly with its stakeholders and/or value

network representatives discusses relevant issues for their development towards sustainability.

In the governance of sustainable value networks, transparency, interaction with stakeholders, and

bidirectionality of feedback loops are some of the important principles to see about. As in network

co-operation generally, good network governance provides continuous interaction, co-operation and

joint development as well as openness and network members’ willingness to work together. In this

first phase of the network governance process, network actors have a unique possibility to launch

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new more open and interactive practices that may, at best, become everyday routines in the

network.

The background of Part I in the SustainValue project:

Palomäki, K., Reunanen, M., Valkokari, K. & Valkokari, P. 2011. Sustainability gaps and stakeholder

requirements. D1.1, SustainValue project.

Valkokari, K., Valkokari, P., Reunanen, M., Palomäki, K. & Amirmostofian, A. 2012. Towards

sustainability governance in manufacturing networks. D1.2, SustainValue project.

Rana, P., Short, S. & Evans, S. 2013. Lessons learned report, documenting the impact from use of the

tools & methods and areas for improvement. D2.5, SustainValue project.

Valkokari, P., Valkokari, K., Reunanen, M., Grefrath, C. & Wagner, D. 2012. Analysis of the existing

methodologies supporting innovation and solution engineering. D3.2, SustainValue project.

Grefrath, C., Wagner, D., Ruder, P.M., Rotaru, R., Frey, D., Brenken, B., Reunanen, M., Valkokari, P.,

Valkokari, K., Macchi, M., Holgado Granados, M., Fumagalli, L., Evans, S., Rana, P. & Short, S. 2013.

Development methodology for sustainable solutions. D3.3, SustainValue project.

Liyanage, J., Beer, J., Valkokari, K., Macchi, M., Rana, P., Short, S. & Evans, S. 2012. Multi-objective

sustainability-performance framework. D4.1, SustainValue project.

Holgado Granados, M. & Macchi, M. 2013. Sustainability metrics and sustainability-performance

KPIs. D4.2, SustainValue project.

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Part II: Organising sustainability governance within a value network

Figure 12. The focus of Part II: Organising.

Part II describes the organising phase of the network-level sustainability governance process, and

broadens the focus from inside of companies and internally performed analyses to the network level

and collaborative decision-making on how to organise cooperation in practice and how to affect

each other. It focuses on negotiating and agreeing on the network structure and the roles of

network members in a setting where business models of network actors can be seen as tools for

describing and negotiating business interests, sustainability objectives and network responsibilities

and benefits.

Agreeing guidelines for network operations together makes also the coordination of tactical and

operational actions more transparent and fluent. If the network members are not committed to

work together and not willing to negotiate collaboration principles for sustainability, they are not

able to go through this phase.

Practical challenges:

Understanding and discussing the expected contribution of each actor and the benefit and risk

sharing within the network and the broader business ecosystem

Understanding the various network structures as well as both formal and informal governance

mechanisms and ways and possibilities to affect other actors

Coordination and knowledge sharing with the network actors and stakeholders

Business transformation and business model redesign according to the new sustainable value

proposition/s

Long term vision for sustainability

Tasks of the phase:

• Determining roles, benefits and responsibilities

• Negotiating network structure and tasks

• Coordinating tactic and operational actions

An

alys

ing - Defining and

describing the key players of the value network and business ecosystem

- Identifying impacts over the product life cycle and requirements of stakeholders within business ecosystem

Org

anis

ing - Forming shared

targets and collaboration models both inside the value network and with the stakeholders within business ecosystem

- Aligning business models and integrating processes according to sustainability objectives

Dev

elo

pin

g - Evaluating progress and setting new targets through shared action agenda

- Renewing actions, operations and business models towards sustainable value network

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5 Determining roles, benefits and responsibilities

The internally, at a company-level performed analysis of network roles supports the preparation for

negotiations and contracting process at network level. Through negotiations the network actors

must clarify their roles and responsibilities and consider conflicts of interest. In order to support the

forming of successful collaboration between network members, companies must have clearly

defined but different roles.

In addition to negotiating for the roles and responsibilities, also the issue of wealth dissemination,

benefits and risks needs to be discussed in this phase. Dissemination of organisational wealth should

be fair and reflect the contribution of each stakeholder to the network’s wealth creation. This relates

to both financial and intellectual contributions of stakeholders and network actors. The distributed

benefits do not always have to appear in the form of direct financial benefits but can also be in the

form of lower prices, innovative solutions, increased accountability and transparency, and education

and knowledge, for example. (Sachs & Maurer 2009.) The following table presents network

members and stakeholder groups, their contribution to collaboration, and examples of benefits –

the Actor – contribution – benefit check list.

Table 5. Network actors’ and stakeholders’ roles, contribution and benefits (modified from Paasi et al. 2013,

Seuring 2011, Sachs & Maurer 2009, Boutilier 2009).

Contribution Benefit

End customer/

user

Knowledge about sustainability

requirements (both present and

future)

More sustainable solutions that

are based on customer needs

Supplier commitment

Sustained business partnerships

Focal company

(product/

service

company)

Fulfilling orders, ensuring sustainable value network performance

Defining and monitoring

environmental and social

performance criteria

Knowledge about business solution

and customer needs

Considering the needs of employees

New approaches, solutions,

innovation, knowledge about end

user needs

Customer loyalty

New network connections

Reduced conflict with unions

Recruitment and retention of most

talented employees

Sustained business partnerships

Local community support

Enhancement of brand value

Geographical expansion of markets

Suppliers Cooperation and integration for supply chain performance

Fulfilling environmental and social

criteria

Contribution to network efficiency,

cooperation, resources and

performance

Procurement conditions,

compensation of supplier risk,

Transparency of value network and

knowledge contribution

Sustained business partnerships

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Product/ solution connected better

to offering, complementary

resources

Other external

stakeholder

groups (e.g.

government,

community,

NGOS)

Bearing risks due to pollution and

contamination

Information on emerging social risks

Fulfilling additional environmental

and social stakeholder

requirements

Corporate philanthropy, financial

and non-financial compensations

for risks borne,

Education and employability

Knowledge exchange, better

transparency of actions

Understanding and considering

other stakeholders’ expectations

It has been stated that for a company to be viable over time, it must demonstrate its ability both to

achieve the multiple objectives of the different parties and to distribute the value created in ways

that maintain their commitment. Risk and benefit sharing is one important factor in the success of a

network, in network actors’ commitment to the pursuit of the jointly set goals, and also an aspect of

network governance tasks. (Ayuso & Argandoña 2007.)

6 Negotiating network structure and tasks

Network actors should be able to form first a shared understanding about what to do, why to do it

and then to figure out who should do it. In order to answer the question how to do it, different

collaboration models can be reviewed. In this organising phase, decisions are made on the structure

of the network and on how the activities are organised.

Governance structures refer to the degree of centralized or distributed coordination (Svahn &

Westerlund 2007). According to their structure networks can be divided to hierarchical hub-spoke

and multiplex model (Doz 2001). Within the hub-spoke-model the focal company is responsible for

the network governance. In the multiplex model the network governance takes place within and

between the network actors. In another classification, three types of governance within networks

have been identified: i) shared governance, ii) lead organisation (typically focal company) governed,

and iii) network administrative organisation (NAO) governed. Under NAO governance, all activities

and decisions are coordinated through one organisation specifically created to oversee the network.

(Provan et al. 2007.) Successful adoption of a particular form of governance is based on four key

structural and relational contingencies: trust, size (number of participants), goal consensus, and the

nature of the task (specifically the need for network-level competencies) (Provan & Kenis 2007). In

this phase, the focal company with its network members may discuss whether the future

collaboration should adopt characteristics of another governance model e.g. by sharing the

governing role with more than just one actor (the focal company).

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It is important to understand what are the mechanisms with which the governing organisation is

able to influence and control key actors’ choices regarding sustainability in order to choose the

appropriate network management models (related to network structure and governance

mechanism). Network management typically balances between (Poppo & Zenger 2002):

- contractual governance mechanism: the use of a formalised, legally-binding agreement to

govern the inter-firm relationships

- relational governance mechanism: the role of norms of solidarity, flexibility and information

sharing in the relationship process.

Relating to contractual governance, contracts are often seen as a key issue for protecting against

risks. Contracts can, however, also work as tools for organising collaboration and introducing

flexibility into the network. As such they work as a part of relational governance mechanisms. A

contract document itself can be seen as an instrument for managing the network and formalising the

networking process. Thus, contracts can be seen as a way to communicate in a network.

The main tasks of value network management in manufacturing industry include (Svahn &

Westerlund 2007):

1) Integrating value activities: Combining value-creating activities, capabilities, expertise,

processes, technologies, products and components that network actors provide. This

requires common standards, rules, and synchronised information and material flows among

all actors in order to ensure efficiency of operations.

Figure 13. Collaboration models (according to Provan et al. 2007).

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2) Controlling and monitoring other actors and their activities: The degree of control varies by

the negotiation power and network position that are based on the network structure and

ownership of important resources from the perspective of the goal of the network.

3) Coordinating the value activities of various actors: Necessary for guiding and scheduling the

value activities of actors in the network towards common objectives.

4) Influencing the other actors and their underlying value-creating activities: The degree of

influence varies in different business situations, and, based on their network position, the

actors have different power to influence others. A hub company (i.e. the focal company)

often has more power to influence the entire network than an individual network member

has.

As illustrated in Table 6, which combines the different network roles and management tasks, there

are several ways to guide the co-evolution of value network and its stakeholders towards

sustainability. In all of these tasks network management requires both formal control governance

and informal guidance. However, integrating and controlling of activities are typically based on

formal contractual governance mechanism whereas coordinating and influencing are based on

relational governance mechanisms, e.g. social relationships and collaboration between the involved

actors.

Table 6. Network management tasks and possibilities from the viewpoint of focal company.

Elements of network management

Network role Integrate Control Coordinate Influence

Direct suppliers X (through contracts and

co-operation)

X X X

Direct customers X (through contracts and

co-operation)

X X

End customers X

Other external stakeholder groups

(NGOs, governments, local

communities)

X X

Based on their network position and network’s governance model network actors have different

possibilities to participate in network governance. Thus, in addition to contractual governance

mechanisms, politics, bargaining, negotiation, and compromise become critical control mechanisms

because organisations still remain relatively autonomous and must be convinced to work together

because they cannot be forced to do so (Phillips et al. 2000).

Collaboration will increase the possibilities to influence the decisions of other network actors

because through collaboration the governing organisation can influence also choices which they

cannot directly guide through formal contracts. Collaboration and interaction related to it builds so

called social capital, which supports relational governance within the network. Furthermore, the

need for collaboration depends on whether the network actors (or other stakeholders) have interest

in same issues or not. For example sustainability matrix (see Figure 11 in Chapter 4) can be utilised in

order to define whether the actors have same or different concerns on sustainability issues.

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Together with the social capital this issue affects the way how collaboration comes off and evolves

(Figure 14). (Boutilier 2009.)

Figure 14. Social capital (adapted from Boutilier 2009).

7 Coordinating tactic and operational actions

Since Describing and aligning strategic objectives in Part I discussed forming shared targets on a

strategic level (Figure 9), this phase looks into the operational-level target setting carried out as a

network. In this phase, the networked actors need to coordinate their actions, match their

capabilities, and share knowledge relating to this. The maturity assessment carried out in the

previous phase serves also for this task as it describes the path for actions to be taken in order to

improve the capability matching process.

Figure 15. Forming shared targets – three levels (modified from Kemp et al. 2007).

On the tactical level, business model works as a tool through which companies can negotiate and

communicate issues relating to their role in the network as well as their own self-interests and

expectations for collaboration. It provides a link between the strategy and operations/processes

(e.g. Hedman & Kalling 2003; Amit & Zott 2001). Though a business model is company-specific, its

meaning for the network lies in its aspect to represent and verbalise how a company works: how it

captures, creates and delivers value. A business model could be described with a help of business

model canvas, for example (Figure 16).

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Figure 16. Business model canvas (Osterwalder & Pigneur 2010).

The transition towards a sustainable business model requires a significant shift in the way businesses

are conceived and operated to create sustainable value. Business model redesign could assist in

embedding sustainability into the core purpose and processes of firms, whilst delivering sustainable

value (environmental, social and economic). This requires a comprehensive consideration of a

system-wide perspective to rethink the value proposition and to create, deliver and capture

sustainable value.

After understanding each network actors’ business purpose and business models and their

approaches to sustainability, the network can proceed to discussing how the actors and the

elements of their business models (see Figure 16) really fit together and how to redesign the

business models with a focus on the network. Steps for aligning business models assists companies

in aligning their business models on the network level. The output of this process is a

transformation/development of the network level sustainable value proposition.

Explore and develop opportunities for sustainable value proposition

Generating a sustainable value proposition/s towards designing a sustainable business model

with a focus on the value network. It is concerned with understanding and analysing the current

situation and other actors’ business models across the network to develop the joint sustainable

value proposition.

Concept generation and selection

Selecting one or a combination of feasible business models, concepts or solutions for the

transformation of the joint sustainable value proposition.

Designing the value delivery system and business models

Includes the identification and potential development of the value delivery system (key

activities, channels, resources, earning models) whilst analysing the cost incurred through the

life cycle to assist in evaluating the options.

• What are the activities, resources, suppliers/partners and channels?

• How is value created and delivered to the identified stakeholders?

• How is value captured from the view point of each value network member?

The alignment of business models requires system-wide rethinking of value proposition as well

as creating, delivering and capturing of sustainable value. Thus, it may necessitate several

negotiation rounds before all network members are able to agree on their role, responsibility

and tasks within collateral operations.

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Also sustainable business model element archetypes support in the transformation of the new

sustainable value proposition by providing a selection of groupings and mechanisms that help in

delivering business model innovation for sustainability. The proposed categorisation of archetypes is

a set of elements that constitute part of a business model design, and thus they can be used in the

first step of the ‘Steps for aligning business models’ presented above.

Archetypes can serve as options and possibilities for sustainable business models through providing

inspiration for practice on how to translate social and environmental value creation into economic

profit and competitive advantage for the company or a network to build the ‘business case for

sustainability’. Thus they can be characterised as optional strategies, and generally a business model

is developed using a combination of several of the various archetypes. As the following table shows,

sustainability can be practiced in various ways – there are many opportunities for businesses.

Figure 17. Sustainable business model archetypes (Short et al. 2012b, Bocken et al. 2013).

The proposed archetypes are intended to use in a workshop environment. The archetypes provide

assistance in two main ways:

Assisting in developing the value proposition by providing a structure for identifying

and exploring opportunities for transforming currently negative outcomes of the

business model, or exploring new ways to create positive sustainable value.

Designing and developing the business model structure by providing guidance in

mechanisms to realise a desired value proposition.

In addition to network-level discussions and developing, the typology has applicability in all

business modelling activities, from exploring opportunities for new start-ups, to assisting in

redesigning business models for established large corporations.

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Overview of Part II and discussion

After this phase, the network members understand the structure of the network, different roles

within it, and the possibilities to affect each other and sustainability objectives. Based on this, actors

are better able to agree on the alignment of their different business models, and find new business

opportunities relating to sustainability (archetypes).

To continue the discussion of this part on the network structure, it needs to be added, however, that

the role of network structure in defining the possibilities to affect in a network is not as black and

white as described but more complex. Many factors contribute to a company’s position and power

as well as to sustainability ambitions in a network. For example, it has been suggested that the

density of network and the centrality of a particular actor in the network are also playing a role in

shaping influences and acceptance within the network, and thus in the attentiveness of companies

to stakeholder concerns and their willingness to accommodate their requests. Shifting from

peripheral to central positions within a network may enable firms to deepen their commitment to

sustainability, and to broaden the scope of their sustainability interactions. Moreover, increased

centrality may give a company a better brokering position that provides opportunities to access

other players and influence the collaboration as well as others’ expectations, perceptions, and

prevailing norms. (Vurro, Russo & Perrini 2009.)

The level of interconnectedness, in turn, is a factor determining a company’s approach toward rule

setting, sustainability commitment, and interactions so that as density increases, relational attitudes

with the goal of creating value for all the involved actors are replacing self-interested and

instrumental approaches. (Vurro, Russo & Perrini 2009.) In addition to network’s structural factors,

also e.g. social attributes (see Chapter 3, Mitchell et al. 1997) affect the formation of network roles,

positions and interaction.

Finally, to conclude this part, developing from the principles of good corporate governance, a focal

company has a moral obligation to use power responsibly, and to positively influence the weaker

parties e.g. by setting standards, serving as role models, through anti-pressure group campaigns,

personnel training and value orientation (Amaeshi et al. 2008).

The background of Part II in the SustainValue project:

Valkokari, K., Valkokari, P., Reunanen, M., Palomäki, K. & Amirmostofian, A. 2012. Towards

sustainability governance in manufacturing networks. D1.2, SustainValue project.

Rana, P., Short, S. & Evans, S. 2013. First stage prototype tools and methods, capable of being fully

used by industrial partners. D2.4, SustainValue project.

Rana, P., Short, S. & Evans, S. 2013. Lessons learned report, documenting the impact from use of the

tools & methods and areas for improvement. D2.5, SustainValue project.

Grefrath, C., Wagner, D., Ruder, P.M., Rotaru, R., Frey, D., Brenken, B., Reunanen, M., Valkokari, P.,

Valkokari, K., Macchi, M., Holgado Granados, M., Fumagalli, L., Evans, S., Rana, P. & Short, S. 2013.

Development methodology for sustainable solutions. D3.3, SustainValue project.

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Part III: Developing sustainability governance within a value

network

Figure 18. The focus of Part III: Developing.

Part III describes the developing phase of the sustainable value network governance process. This

part focuses on the network-level collaboration based on a shared action agenda and feedback loops

enabling co-creation and building trust, the key elements of relational business practices. Based on

the shared action agenda and joint actions the network members evaluate the progress and set new

targets. It is important that parties openly also assess the needs to change network configuration,

structure and operation model. Furthermore, the value network should also be able to collaborate

with its stakeholders as a network.

At the network level, there is no single centralised control mechanism that governs the value

network’s behaviour and dynamics, and changes emerge over time also without any singular entity

deliberately governing the network evolution. Network’s evolution is co-produced based on external

influences from business environment and internal interaction and relationships between network

members. As a consequence, due to complex network relationships and interdependencies also with

other networks, some development activities occur that might be conflicting to some of the actors.

Although value networks are often defined as long-term arrangements, they can (and should) be

distinguished from companies by dynamics and temporariness which means that when the joint

objectives are gained the network can be broken down, for example. Thus, network members should

be prepared for dissolution of network as well as for searching and involving new actors when

required.

Practical challenges:

Value network works together as an entity

Value network collaborates with its stakeholders and integrates them into processes

Critical assessment of the structure and processes as well as of the sustainability level inside the

value network and between network actors, and developing them if necessary

Enabling trusted collaboration schemes, joint processes and action

Developing a vision and plans for the future on the network level

An

alys

ing - Defining and

describing the key players of the value network and business ecosystem

- Identifying impacts over the product life cycle and requirements of stakeholders within business ecosystem

Org

anis

ing - Forming shared

targets and collaboration models both inside the value network and with the stakeholders within business ecosystem

- Aligning business models and integrating processes according to sustainability objectives

Dev

elo

pin

g - Evaluating progress and setting new targets through shared action agenda

- Renewing actions, operations and business models towards sustainable value network

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Tasks of the phase:

• Talking about joint actions as a value network

• Strengthening trust through joint actions

• Thinking sustainability on network level

8 Talking about joint actions as a value network

Companies – or even networks – cannot solve sustainability challenges (Figure 1) alone because in

practice they share the problems with several layers of stakeholders (Figure 19). Therefore

sustainable development requires broader perspective, and the value network should be able to

collaborate with its stakeholders as an entity, as a network.

Figure 19. Layers of networked sustainable development.

Once the governance process has been organised and is in operation, the network actors have the

possibility together to assess that the structure and processes work as planned, and to develop them

if necessary. Still, renewing actions, processes and structures at the network level requires

understanding of their internal and external dependencies. The changes on the network level have

influences to the network’s stakeholders, present and also future society. These dependencies

should be analysed for example with the help of the sustainability matrix (Figure 11) which is a tool

for evaluating and coordinating interests and sustainability objectives of stakeholders.

Relating to stakeholder engagement, the network should also find a balance between including too

many or too few groups of stakeholders to its activities, and thus carry out a categorisation and

priorisation of stakeholders and decide on which stakeholders it will include in its sustainability

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efforts. Moreover, the network’s ability to strengthen collateral relationships also between

stakeholders, e.g. match groups of stakeholders and network actors together when they have same

kind of sustainability concerns, could help configure an open-minded core of involved parties willing

to collaborate for the common good. Thus, building a shared action agenda for the future

development of the value network could take the sustainability governance within a value network

to the next level.

Build shared understanding about strategic objectives at the value network level

include clear identification of risks and opportunities

Identify the stakeholders in the business ecosystem and their input to sustainability

strategy and performance

ensure regular and active engagement with stakeholders

Consider integration of network members’ internal controls and management systems

include transparent communication of cost and benefit sharing and rewarding

Develop shared, measurable and relevant sustainability indicators and metrics

ensure transparency and openly communicate (report and evaluate), include financial

and non-financial aspects

(modified from Kruse & Lundbergh 2010)

Shared action agenda will be implemented through joint actions within the value network and with

stakeholders.

Relating to studying future paths, strategic roadmapping tool is also suitable in this phase (see e.g.

Phaal et al. 2012). The strength of roadmapping approach is in the identification of obstacles and

threats, as well as opportunities, solutions and steps for dealing with them, and in the generation of

shared targets and a common vision. (Phaal et al. 2004; McDowall & Eames 2006.) Keeping the

sustainability target of value network in mind, roadmapping tool can be used to plot the identified

value proposition and business model additions and activities on a timeline that stretches from the

current date to a projected end-point – the long-term sustainability vision. Thus, in addition to

network-level visioning, this kind of strategic planning supports the actual transformation and

implementation.

Developing a joint vision / Recognising a specific problem or need that should be

addressed

Choosing and defining the roadmap layers (typically market/business, product/service,

technology) and sub-layers

Organising facilitated workshops out of which the first ones focus on the main layers of the

road-map, and the last one gathers the themes together on a time-basis (near, mid, long-

term)

Discussions and iteration rounds

Follow-up activity and updating of the roadmap on a periodic basis

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Moreover, as with the most of the other tools presented in this workbook, many of the benefits of

roadmapping come from the process that brings actors together, provides an opportunity for sharing

information and perspectives, and provides a vehicle for holistic consideration of problems,

opportunities and new ideas (Phaal et al. 2004). Previously (in Chapter 4) presented Maturity

assessment for network conditions may serve also at this point of governance process since it can be

used in setting targets and roadmap for future development.

9 Strengthening trust through joint actions

In a strong collaborative relationship all parties discuss together the joint actions, define the

outcomes and can learn together and from each other. Trust is a function of an informal governance

mechanism that can mitigate potential conflicts between network members. Firms that have built

continuous relationships and trust with their network members should benefit from these informal

governance mechanisms by way of utilising knowledge more efficiently. (Filatotchev & Nakajima

2010.) Joint actions and working together as a network is a key for strengthening trust between

network members and stakeholder groups.

The relationship – interaction matrix (Figure 20) aims to evaluate the evolvement of relationships

through joint actions. The vertical axis describes shared understanding between actors, i.e. how well

the interests of network actors are aligned and if they consider network as mutually beneficial. The

actors should consider whether the interests of all participants are aligned to each other and to the

shared sustainability objectives. The horizontal axis defines interaction between the network

members, i.e. how many contacts there are between the actors and whether the communication is

bidirectional or multidirectional. Network-level considerations based on the relationship –

interaction matrix could help the network members to build shared understanding about the

different perceptions of involved actors. This, in turn, supports transparency within the value

network and concurrently strengthens the relationships.

Figure 20. Shared understanding and interaction in relationships (modified from Boutilier 2009, Paasi et al.

2013).

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Sustainability has also been discussed from the view point of cultural change which is closely related

to relational governance through shared norms, willingness to collaborate and social capital

between the actors – and to trust as an enabler behind all of these. Moving from mere compliance,

to engagement of stakeholders, to pursuit of value in all three dimensions of sustainability requires

that organisations, also value networks, develop the necessary culture and internal capabilities to do

so. Three levels of culture with respect to organisational attitudes to stakeholders and the creation

of value have been recognised, and are as follows:

Level 1. A compliance culture: The organisation is not especially engaged with its

stakeholders but basic societal norms are respected and the organisation seeks to avoid the

unacceptable destruction of value (economic, social or environmental).

Level 2. A relationship management culture: The organisation recognises the instrumental

value of good relations with immediate stakeholders (e.g. customers, workers, communities,

business partners), and seeks to provide value that is appropriate for each, within the limits

of what is possible and only after the demand of investors are satisfied.

Level 3. A sustainable organisation culture: Organisation recognises the interdependencies

and synergies between the company, its stakeholders, value networks, and society, and

seeks to maximise the creation of value in terms of economic, social and environmental.

(Wheeler et al. 2003.)

However, it needs to be pointed out that organisations do not have static cultures, and their

relationships with stakeholders and network members vary over time, which causes changes also to

beliefs, attitudes, and norms inside the value network. Similarly as the sustainability continuum

presented in the next chapter, this framework with its three levels can be used as a tool for assessing

and developing current and future organisational approaches to stakeholders and value creation.

(Wheeler et al. 2003.)

These levels of culture can also be used to assess and mirror the atmosphere and attitudes towards

sustainability on the network level. In the development of network governance and network’s

sustainability thinking, the framework of Wheeler et al. can be used for example to pose questions

such as is the network members’ and the whole network’s value proposition feasible, and how

should the cultures be developed in the future. Furthermore, the maturity assessment describing

network conditions (presented in the chapter 4) could also be utilised here to evaluate the value

network’s present state and development needs.

10 Thinking sustainability on network level

Network-level sustainability thinking at its best requires that individual network actors prefer

common good over their self-interests. Still, this kind of thinking cannot be reached if the actors are

not able to trust their network members and are afraid of opportunistic behaviour. Implementing

shared action agenda (considering all three sustainability levels), transparent communication and

feedback loops are prerequisites for sustainability thinking as a network. Through just processes and

joint action network members can even create shared cognitive models which facilitate co-creation.

If the starting points for the network actors are very different regarding sustainability levels, e.g. an

actor is very sustainability driven and the other actors are on the compliance level, at this phase they

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need to recognise and reassess their objectives, separately and together, and make decisions on

how they need to develop and what measures need to be carried out in order to reach the set

objectives. This should be done from the viewpoint of the whole value network so that the current

level and the target level are truly synchronised between network actors. Moreover, the progress

should be evaluated together from time to time.

Corporate sustainability continuum (Willard 2005) can support the framing of the present situation

regarding to sustainable development and in comparing the levels of sustainability of different

actors. The continuum represents the progress of firms on the path towards sustainability and a firm

can utilise it when exploring the question “where are we with respect to sustainability as strategic

choice?”. Furthermore, it can also be utilised in studying future paths for sustainability and

development needs in order to achieve the same level between the network actors, and thereby it

can be utilised also within the strategy development process.

Figure 21. Corporate sustainability continuum (modified from Willard 2005).

Overview of Part III and discussion

After this phase, the network understands its meaning as a collaborative entity that is continuously

developimg and evolving based on interaction internally and externally. Since the network has

developed this far, it needs to have understanding on how to integrate formal and informal

governance, and a vision of the future development needs. The joint vision ensures that each

network member will have competitive edge also in the future, and is able to balance the three key

aspects of sustainability.

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Networked business environment is complex. All network members are taking part to several value

networks, and they must align their sustainability objectives at the company level also in accordance

with the objectives of other networks in the business ecosystem. To add the complexity, also the

stakeholders form, through their interactions, loosely-coupled networks with both aligning and

conflicting interests (Boutilier 2009).

The complexity of networked business environment can be reviewed also from the perspective of a

product or service. In each life cycle phase (e.g. R&D, production, distribution, usage, end-of-life) of

a manufactured product or a service, various value networks come together and interact. In order to

work together, the network members need to align their different ways of actions and approaches

to sustainability. Therefore, from the perspective of sustainable development, the real challenge

here is to consider the needs of all actors involved in the product’s or service’s life cycle already

when making the first decisions about the product or service development (e.g. related to materials,

distribution channels, maintenance services, end of life solutions). As each decision made in a

network taking part in the product or service development affects the requirements and possibilities

of other networks in the preceding or following life cycle phases of the product or service, it is crucial

that networks understand the meaning, role and influence of their operations in this broader setting.

To conclude, in order to develop the business truly sustainable, network members need to support

each other as well as other networks and consider business as co-creation of common good instead

of each member acting in their own self-interest. In order to achieve this and to support

sustainability and life cycle thinking, networks need to actively explore new ways to develop and

renew their business models and governance and be committed, as an entity, to sustainability.

The background of Part III in the SustainValue project:

Rana, P., Short, S. & Evans, S. 2013. Lessons learned report, documenting the impact from use of the

tools & methods and areas for improvement. D2.5, SustainValue project.

Grefrath, C., Wagner, D., Ruder, P.M., Rotaru, R., Frey, D., Brenken, B., Reunanen, M., Valkokari, P.,

Valkokari, K., Macchi, M., Holgado Granados, M., Fumagalli, L., Evans, S., Rana, P. & Short, S. 2013.

Development methodology for sustainable solutions. D3.3, SustainValue project.

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Conclusions: Sustainability in value networks

Sustainability, as well as network development, is a continuous process where involved parties must

work together in order to gain shared objectives. The objectives may often be seen as equivocal and

ambiguous. Moreover, the benefits cannot always be assessed in monetary terms and network

members may reach them within different timelines. Thus, one of the main challenges in network

governance towards sustainability is to ensure that all stakeholders and value network members

perceive positive value outcomes. In a value network, network members need to work together to

ensure both present and future competitive advantage for all parties, but sustainability thinking

challenges them to consider also stakeholders’ and other networks’ viewpoints and thus to have an

even broader perspective to the positive value outcomes.

In addition to the need for multiple value outcomes, renewal is another key issue in the current

dynamic business environment. Sustainable value network should find a balance also between

exploitation of resources and exploration of new business opportunities. The network members

need to support each other to find new business opportunities and aim to co-creation of common

good instead of acting in their own self-interests. The pursuit towards sustainable value networks

and sustainability is nothing but simple, and requires guiding and governing on multiple levels.

Figure 22. Sustainable value integration into manufacturing industry.

Therefore, the present – and especially the future challenge – is to govern sustainability within

various value networks and business ecosystems. The framework presented above (Figure 22)

illustrates the many parts that play a role and interact in this. Besides the governing of the whole

network towards the same target, also sustainability governance at a company level by applying the

current best practices has a significant role in the sustainability development. Thereby, present

norms, standards and practices must be recognised, followed and even surpassed. In addition to the

company level, the norms of good governance, accountability, transparency, responsibility, and

fairness must be complied also at the value network level. In this, the shared action agenda is an

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important mechanism for transition management guiding the actions of individual network

members towards sustainability.

It should also be understood that due to their changing roles the same stakeholders and network

actors can have different requirements in different stages of product life cycle. This being the case,

company level practices and procedures cannot directly be utilised for network level sustainability

development and its governance.

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Terminology

corporate social responsibility (CSR) (see also social responsibility)

CSR is the continuing commitment by business to behave ethically and contribute to economic

development while improving the life of workforce and their families as well as the local community

and society at large (WBCSD 2000)

corporate governance (see organisational governance)

network

a group of three or more organisations connected in ways that facilitate achievement of a common

goal (Provan et al. 2007, p. 482)

organisational governance

system by which an organisation makes and implements decisions in pursuit of its objectives (ISO

2010)

Governance refers to mechanisms (for instance processes, structures, norms) that organisations

deploy to influence organisation members and other stakeholders to contribute to organisational

goals.

social responsibility (ISO 2010)

responsibility of an organisation for the impacts of its decisions and activities on society and the

environment, through transparent and ethical behaviour that

— contributes to sustainable development, including health and the welfare of society;

— takes into account the expectations of stakeholders;

— is in compliance with applicable law and consistent with international norms of behaviour; and

— is integrated throughout the organisation and practised in its relationships

NOTE 1: Activities include products, services and processes.

NOTE 2: Relationships refer to an organisation's activities within its sphere of influence.

stakeholder

individual or group that has an interest in any decision or activity of an organisation (ISO 2010)

stakeholder engagement

activity undertaken to create opportunities for dialogue between an organisation and one or more

of its stakeholders, with the aim of providing an informed basis for the organisation's decisions (ISO

2010)

sustainability

sustainability and sustainable development are synonymous (Rana et al.2009)

sustainable development (ISO 2010)

development that meets the needs of the present without compromising the ability of future

generations to meet their own needs

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NOTE: Sustainable development is about integrating the goals of a high quality of life, health and

prosperity with social justice and maintaining the earth's capacity to support life in all its diversity.

These social, economic and environmental goals are interdependent and mutually reinforcing.

Sustainable development can be treated as a way of expressing the broader expectations of society

as a whole.

sustainable manufacturing

The ability to address world-wide shortages of natural resources, to mitigate the excess of

environmental load of manufacturing activities and to enable an environmentally benign life cycle of

products and services, while continuing to improve the quality of human life. This ability is

developed based on a smart set of innovative methods, practices and technologies in the

manufacturing field; moreover, regulatory measures and coherent social/economic behaviours of

stakeholders are the main important drivers of sustainable manufacturing. Sustainable

manufacturing objectives can be declined in well-known sustainability’s dimensions, i.e. economic,

environmental and social dimension. (Garetti 2009; IMS2020 2009)

sustainable manufacturing network

is an organisational form which (i) targets to gain future competitive edge to all participants through

interaction and collaboration, and thereby (ii) is able to balance the three key aspects of

sustainability (environmental, economic and social aspects) [1]. In manufacturing industries focal

company and its suppliers and customers form a typical value network thus covering both upstream

and downstream networking, and encompassing both production and service networks [2].

sustainability reporting

a broad term considered synonymous with others used to describe reporting on economic,

environmental, and social impacts (e.g., triple bottom line, corporate responsibility reporting, etc.)

(GRI G3.1 Sustainability reporting guidelines)

transparency

openness about decisions and activities that affect society, the economy and the environment, and

willingness to communicate these in a clear, accurate, timely, honest and complete manner (ISO

2010)

value chain (ISO 2010)

entire sequence of activities or parties that provide or receive value in the form of products or

services

NOTE 1: Parties that provide value include suppliers, outsourced workers, contractors and others.

NOTE 2: Parties that receive value include customers, consumers, clients, members and other users.

value network

consists of organisations (companies) co-operating with each other to benefit all network members.

In manufacturing industries focal company and its suppliers and customers form a typical value

network.

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References Table 7. The references (deliverables and others) for each tool presented in the workbook.

Tool References (deliverable(s) and others)

Network picturing tool Valkokari et al. 2004

Value mapping tool Bocken et al. 2013

Grefrath et al. 2013 (D3.3)

Rana et al. 2013 (D2.5)

Short et al. 2012

Relationship analysis Valkokari et al. 2012 (D1.2)

Supplier evaluation matrix Grefrath et al. 2013 (D3.3)

Maturity assessment for network conditions Grefrath et al. 2013 (D3.3)

Holgado Granados & Macchi 2013 (D4.2)

Liyanage et al. 2012 (D4.1

Sustainability matrix Carroll 1991

Grefrath et al. 2013 (D3.3)

Timlon 2011

Actor – contribution – benefit check list Boutilier 2009

Paasi et al. 2013

Sachs & Maurer 2009

Seuring 2011

Valkokari et al. 2012 (D1.2)

Collaboration models, network management

tasks check list

Doz 2001

Provan et al. 2007

Provan & Kenis 2007

Svahn & Westerlund 2007

Valkokari et al. 2012 (D1.2)

Steps for aligning business models Grefrath et al. 2013 (D3.3)

Rana et al. 2013 (D2.4)

Sustainable business model element

archetypes

Bocken et al. 2013

Rana et al. 2013 (D2.5)

Short et al. 2012b

Shared action agenda for the future

development of value network

Kruse & Lundbergh 2010

Valkokari et al. 2012 (D1.2)

Strategic roadmapping tool Phaal et al. 2004

Phaal et al. 2012

McDowall & Eames 2006

Relationship – interaction matrix Boutilier 2009

Paasi et al. 2013

Corporate sustainability continuum Grefrath et al. 2013 (D3.3)

Willard 2005

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List of reference deliverables (SustainValue project):

Palomäki, K., Reunanen, M., Valkokari, K. & Valkokari, P. 2011. Sustainability gaps and stakeholder

requirements. D1.1, SustainValue project.

Valkokari, K., Valkokari, P., Reunanen, M., Palomäki, K. & Amirmostofian, A. 2012. Towards

sustainability governance in manufacturing networks. D1.2, SustainValue project.

Holgado Granados, M. & Macchi, M. 2012. A reference business model architecture for sustainable

manufacturing products, services and processes. D1.3, SustainValue project.

Rana, P., Short, S. & Evans, S. 2013. First stage prototype tools and methods, capable of being fully

used by industrial partners. D2.4, SustainValue project.

Rana, P., Short, S. & Evans, S. 2013. Lessons learned report, documenting the impact from use of the

tools & methods and areas for improvement. D2.5, SustainValue project.

Valkokari, P., Valkokari, K., Reunanen, M., Grefrath, C. & Wagner, D. 2012. Analysis of the existing

methodologies supporting innovation and solution engineering. D3.2, SustainValue project.

Grefrath, C., Wagner, D., Ruder, P.M., Rotaru, R., Frey, D., Brenken, B., Reunanen, M., Valkokari, P.,

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