We live in a time of social transition. Everywhere in society, cracks are appearing. The only answer to these developments is to organize in radically different ways, saying goodbye to the present linear economy. That is what transition is all about. The search for new forms of value creation and the triple transition necessitates different business models. In turn this implies behavioural change, which may be the biggest challenge and greatest barrier to achieving a transition to a sustainable, circular, and inclusive economy. This book deliberately does not address the issue of change and transition. That would require yet another book. But to finish off we provide an overview of the obstacles and challenges of creating fundamental change. We say goodbye by providing you with the six elements of a successful business model. The key message of this last chapter is that mainstreaming sustainable business models is by no means a given, but over time will become the new normal.
- Sustainable business models
We live in a time of social transition. Institutional arrangements that have been carefully built up in recent decades are under heavy pressure. People no longer colour within the lines. Students take to the streets in protest. Common answers and arrangements are no longer sufficient. Everywhere in society, cracks are appearing. Elected representatives of the people both devise and advocate a reality armed with polarizing facts. The COVID-19 pandemic has highlighted how our normal ways of doing things can be upended in a matter of weeks or months.
The only answer to these developments is to organize differently—on our own and with others. That means saying goodbye to linear economies—which are a safe and familiar way of working that we know and have mastered, but which have dark sides we can no longer ignore. Because continuing to abuse the earth, combined with a rising population, will ultimately lead to confrontations: about climate refugees, exhaustion, pollution, weather changes, declining biodiversity, floods, droughts, severe forest fires, and so on. Almost every day we see the effects of this in the news: we can read the background in newspapers and learn more from an ongoing stream of scientific reports, policy briefs and memoranda—the stream of information is endless and is growing exponentially.
Observing this development from a distance, it appears something much more fundamental is at stake. We organize collectively and collaboratively to achieve a broad range of created values which we could not realize individually. That is a timeless argument because all through the history of mankind we have shown that together, we can achieve more. But what is of value changes over time. So now, once again, we are consciously and unconsciously trying to discover what these new forms of value creation could look like. This is what transition is all about. We use this word because it fundamentally questions the way we organize ourselves in today’s world. There is no manual or standard way forward for this process of (re)discovery—only trial and error. Neither a national government nor Brussels have ready-made answers.
We have argued in this book that the search for new forms of value creation and the triple transition necessitates different business models: new business models that create multiple forms of value. This has been described using principles that draw attention to both the social and the ecological side of value creation in business models. As long as the nature of transitions and transactions is not revised, we will remain caught in existing routines and behaviour without being aware of them.
When we superficially green what we have, nothing really changes. Doing things differently implies behavioural change, and this may perhaps be the biggest challenge and greatest barrier to achieving a transition to a different, sustainable, circular, and inclusive economy. This book deliberately does not address this issue, however relevant and interesting it may be. Elaborating on the role of behaviour change would lead to a workbook within a workbook, given the nature and size of the change management discourse. It is nonetheless an intriguing question of how the BMT could be used as a change management tool.
1 New Models of Organizing
Working with truly new business models will necessitate different organizational relationships: more horizontal and digitally facilitated within networks. The current distinction between citizens and companies is likely to partially disappear or fade away. People are suddenly not just citizens, but also entrepreneurs and self-investors, because they start a solar park or set up a car-sharing system. Call it DIY entrepreneurship, which leads to home-generated electricity, managing an orchard together, or setting up a time bank in the neighbourhood combined with a smart grid: the possibilities really are endless.
However, to realize this, the established order must be tackled first. In the past two centuries, we have increasingly left the organization of value creation to organizations. Over the years, these have functioned almost exclusively with a focus on money as the central and only medium of exchange. In the business models that arise, many costs (ecological, social etc.) are excluded. This has created a very lean transaction model which prioritizes monetization above all else. Anything that cannot be converted into euros is not counted and therefore does not matter.
We need organizations to be jointly responsible for the life cycles of products and services, and thus the organization of the preservation of raw materials. If we want such ecology to work, it is not enough to hold the individual organization accountable for a slightly different, somewhat more sustainable, somewhat less polluting performance. Instead, the focus needs to be on how a configuration of parties bears shared responsibility for the life cycle of a building, a highway, or a raw material (e.g. plastic, concrete, or wood). This requires a different way of thinking and organizing, which is not incorporated into many business models. After all, the existing legal, fiscal, and organizational structure is entirely geared to individual companies that function in a linear value chain. Doing this differently requires a change in people’s minds, but also (perhaps first and foremost) a change in the institutional structure.
The major challenge this poses is to shape value creation differently from conventional business models. The ambition is to achieve value creation that is simultaneously sustainable, circular, and inclusive. Working on this means revising (1) the nature of value creation in existing models or creating a new model from scratch, which leads to (2) a different organization of the value proposition with no one organization being central, but various parties taking responsibility over time, and (3) working with a wider range of transaction mediums (e.g. hybrid transaction systems), possibly facilitated by digital technology and developments such as cryptotechnology. The BMT is a framework intentionally designed to support you to develop new business models that are simultaneously sustainable, circular, and inclusive. If we want to get anywhere, to build up momentum and volume, we are talking about something radically different: about system change, about new ways of working, about creating and sharing what is of value.
We can either have ourselves held hostage by a theoretical debate about how everything has to change, or start using the resources we already have today to combat exhaustion. This way we buy time and at the same time we can start the real transformation. Ingrid Visseren-Hamakers (10 May 2019)
2 Change Is Always Challenging
Working on new business models is ultimately a change management challenge. New models are not invented in a vacuum, but within the existing social and economic order. It is not without reason that we call this the established order. Based on all possible considerations and historical developments, that order has been established, and all potential parties are interested in keeping it that way. Proposing to irrevocably change that order creates resistance. But that is what the previous statement was advocating with such things as value creation, sustainability, biodiversity, and social inclusion. In a society where everything of economic importance is based on monetized transactions, drawing attention to including more than one value is something that just does not fit. We came across a summary of why change is so difficult (PWC, 2019). Below we present a slightly adapted synopsis of the key obstacles to change.
Obstacles to Change
Obstacle 1—Breaking away: Organizations have a hard time breaking away from existing organizational and institutional structures: everything is designed and aligned accordingly, including the institutional environment (both internal and external).
Obstacle 2—Earning potential: The earning potential of a new business model cannot be demonstrated (in advance). Hence, companies struggle with the assessment of risks that a switch to a different model would entail.
Obstacle 3—Locked-in: The core business lock-in. As an organization, we are what we are doing and can do, and our processes, procedures, competencies, and skills are geared towards this; it is hard to think outside of that box.
Obstacle 4—First-movers’ uncertainty: The so-called first-movers dilemma is an (intuitive) break with established and ongoing practices for many managers and directors. Being the first results in considerable uncertainty. For start-ups, it is slightly different since they are used to living with uncertainty compared to established businesses.
Obstacle 5—Technological disruption: Technological disruption and new competition certainly influences the first-mover dilemma but is not often associated with sustainability, circularity, and inclusivity.
Obstacle 6—Emerging strategy: In the process of working with an emergent strategy approach, key is gradually integrating new developments and events as they occur. As a result, a strategy develops and changes from day to day. In this process, new plans often do not pay attention to the business model.
Obstacle 7—No time available: Organizations do not reserve time to work on transition and transformation. The day-to-day affairs absorb much, if not all, of the time. Really working on change requires a significant commitment and investment of time.
It is not particularly complicated to expand the number of obstacles even further (think of the aforementioned change management issues for citizens and companies), but this list gives a helpful indication of why trying to transform a business model can be met with a lot of resistance. For those who want to stay awake at night reading, consider also ecosystem thinking, value networks, cross-sectoral collaboration and so on. This certainly creates a more complete, but also a more complex picture of the nature and scale of the transformation. In this context, it is not surprising that existing organizations are mainly concerned with improvements and not with transformation, let alone transition, because questioning what they are maintaining with their work could threaten the established order.
3 The Six Elements of a Successful Business Model
Sometimes you come across research that is close to your own research—that is connected in some way. This observation certainly applies to the work of Kavadias et al. (2016) published in the Harvard Business Review. They conducted an in-depth analysis of 40 totally different companies—from Airbnb, Ikea, and Dell, to Lego, Rolls-Royce, and Uber—that have potentially launched a disruptive business model but have not done so with the intention to contribute to sustainability, circularity, and inclusivity. Some of these business models profoundly changed their industry, while others looked promising but ultimately failed. The authors searched for the recurring characteristics in these business models and identified six of them. Luckily, each of these characteristics has been discussed in the previous chapters. No company showed all six characteristics, but there was a rule of thumb: the more characteristics any one company had, the more chance they had of a successful business model.
So here we would say that to have transformative potential, business models must contain at least three of the following six characteristics:
A more personalized product or service: Many new models offer a combination of products or services that are much better suited to the individual and the direct needs of customers than generic ones. Technology often plays a role in this: see our earlier comments regarding the IoT and the IoS (see Sect. 6.2 in Chapter 6) and how these developments enable customization.
Closed-loop processes: Many business models replace a linear consumption process with a loop, in which used products are reused (see our previous discussion on the RE-strategies in Chapter 8—Strategies). If the business model is supported by an appropriate revenue model, this reduces total resource costs.
Asset sharing: Some innovations are successful because they provide the possibility of sharing valuable assets as we have seen earlier in Chapter 2 on Business models. Sometimes assets can be shared in a supply or value chain leading to a kind of forward and backward integration. Asset sharing usually takes place through two-way markets (often online) that create value for both parties: I get money for sharing my spare bedroom, and you get a cheaper and perhaps nicer place to stay. Sharing also lowers entry barriers in many industries because the entrant does not need to own the assets in question—he only has to act as an intermediary.
Use-based or service-based business models: In some models, the customer does not have to purchase the product or service, but only pays for the actual use leading to the so-called pay-per-use transaction models (see Chapter 12). Customers benefit from this because they only pay when the products or services deliver value to them. We find this totally normal when using a train or plane. The interesting development here is that this concept sprawls into business and into everyday life. So, we get washing-as-service, neighbourhood sun-based (central) heating, or even the service of looking through a window as part of a broad range of services that in turn create new services, given the fact that endless combinations are now possible. The company benefits because the number of customers is likely to grow.
A more collaborative and horizontal ecosystem and a connection with community thinking: (see Chapter 6—Business Model Archetypes) Some innovations are partly successful because new technology improves cooperation with partners and supports a better distribution of risks. That, in turn, enables cost reductions. But what it also allows for is using products and raw materials more efficiently. This was previously referred to as eco-efficiency and value retention.
An agile and adaptive organization: Innovators sometimes use technology to abandon traditional hierarchical organizational forms and move to organizational models that enable real-time adaptation to changes in needs. This often results in added value for users and also leads to more flexibility at lower costs. We discussed this in terms of the transition from a vertical to a horizontal organization as well as working with flexible networks (see Chapter 7—Parties Involved).
Each of these six elements in Fig. 15.1 has links to long-term trends in both technology and developments. For example, more personalization in the value proposition is a response to the fragmentation of customer preferences and the resulting demand for a more diverse offer. This personalization is enabled by sensors that collect data from cloud-connected devices. This data is analysed by big data solutions and converted into services—recommendations and alerts—that are different for each user.
4 Final Word
Back to the present and the challenge of shaping transformation and transition through a new generation of what we have called sustainable business models. People, organizations, and government authorities are looking for ways to create value in a collaborative and collective way.
The BMT offers existing companies a lens and a framework which enables them to explore innovation opportunities which contribute to social and ecological issues and ultimately make them more successful as an organization. There are many ways this might come about. Just take a look at how organizations such as Ikea, Patagonia, and Interface experience these changes in their day-to-day practice.
The BMT also gives inventive, entrepreneurial people the opportunity to develop their own innovative business model. Sometimes these ventures—especially at the start—will be amateur. But concepts will develop over time despite mistakes being made, because we live in times where efforts to create a New Economy are welcomed.
People and organizations in society are tinkering with finding ways that this can be done in a dominant institutional and regulatory context. Of course, the success of this new way of organizing—which prioritizes multiple forms of value creation—is still fragile. Yet, at the end of the day, it yields a picture of a generation of new frontrunners who set the contours of a transition towards a different economy with new business models. Mainstreaming sustainable business models is by no means a given, but there is hope that over time sustainable business will become the new normal.
Kavadias, S., Ladas, K., & Loch, C. (2016). The transformative business model. Harvard Business Review, 94(10), 91–98.
PWC. (2019). Eindrapport Groene Business Modellen: Hoe kunnen bedrijven ermee aan de slag? PWC—Departement Omgeving—Afdeling Energie, Klimaat en Groene Economie. https://archief-algemeen.omgeving.vlaanderen.be/xmlui/bitstream/handle/acd/229984/Eindrapport%20Groene%20Business%20Modellen.pdf?sequence=1&isAllowed=y.
Visseren-Hamakers, I. (2019). Afzien van economische groei, kunnen we dat wel? NRC Handelsblad. Retrieved on 24 September 2020 from: www.nrc.nl/nieuws/2019/05/10/afzien-van-groei-kan-een-economie-dat-a3959860.
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Jonker, J., Faber, N. (2021). Epilogue. In: Organizing for Sustainability. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-78157-6_15
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