Strategy

Abstract

In this chapter, we explore the nature of strategy. We have touched upon the subject in earlier chapters but here we present a typology of strategies. We define strategy as a route consisting of a set of deliberate actions leading to realizing your sustainable value proposition. Strategy can be approached as a plan or a process. Six strategies are distinguished: (1) eco-efficiency, (2) product as a service, (3) use optimization, (4) lifespan extension, (5) cascading, and (6) community building. Each of these strategies can be used as a stand-alone strategy or in a balanced combination while developing one of the business model archetypes. Which of these strategies or combinations you choose depends on the specific circumstances and stakeholders involved and the context in which you are seeking to realize your business model, as well as the underlying value proposition. A functional strategy is fundamentally a matter of clear, reasoned and actionable choices.

Bundles use the most efficient A+++ machines. Bundles also help to wash smarter and more economically. The Bundles Buddy is a smart device that monitors your washing patterns and gives you personal advice on how you can wash smarter through programme selection, detergent and load sizes, and washing temperatures. If everyone washes smarter, together we can save a lot of electricity! Bundles, www.bundles.nl.

Babyexchangerie are conquering the market for baby things with a lease model. For a fixed monthly amount, you can rent everything new parents need for children up to about one year of age, such as a crib, a pram, and a baby carrier. Once the child has grown out of it, you send it back. Babyexchangerie, www.Babyexchangerie.nl.

FLOOW2 made visible the supply and demand of equipment, facilities, surplus stock and knowledge of employees within the Albert Schweitzer Hospital. Things not used cost money, and by making better use of what the hospital already has, these costs are reduced. FLOOW2 creates a WinWin sharing platform. Peter van der Meer, Albert Schweitzer Hospital Executive Board, www.floow2.com.

The Surplus Food Factory has an important point of departure: to take surplus food destined for human consumption and recover it for the same purpose. We want to save as many vegetables as possible to turn them into tasty products. The Verspillingsfabriek, www.deverspillingsfabriek.nl.

Cascading differs from ordinary reuse and recycling in that it changes the function and the extent to which the product is processed. A cotton T-shirt can serve as an example. When reused, a worn T-shirt is sold in a second-hand shop. When recycled, the T-shirt is shredded into cotton fibres, which are then spun into new yarn. Cascading is the use of old T-shirts as cushion filling. Het Groene Brein, https://kenniskaarten.hetgroenebrein.nl.

We see great opportunities for cooperative farms that make citizens share ownership of their farms: consumers who both produce and consume. We help them develop these small-scale mixed companies that produce sustainable, healthy, and tasty food and restore lost food skills. Herenboeren, www.herenboeren.nl.

1 Mapping Out the Route

Strategy has been very briefly touched upon in earlier chapters. In Chapter 5, five traditional value creation strategies were explained (product leadership, organizational excellence, customer intimacy, experience, and community building) as well as five value creation positions over time (transformation, recycling, circularity, regenerating and restoring). These are both strategic considerations to reflect on the nature of value creation in a business model and how to address them strategically. But there is more. Therefore, in this chapter, we will dive more specifically into the nature of strategy itself and present a typology of strategies (Fig. 8.1). It is handy to have a fresh memory of the three earlier-introduced business model archetypes in Chapter 6 and the guiding principles that were introduced in Chapter 2 since they create the basis for what we see throughout this book as sustainable business models.

Fig. 8.1

Typology of strategy choices

So, here we define strategy as a route towards your desired value proposition. It can be seen as a set of actions you define leading to an actionable future-oriented perspective—often with the parties you work with—with the primary goal of arriving at your proposition. In addition to the actors and stakeholders that you work with (as discussed in Chapter 7), other local factors also play a key role. Environmental factors can range from geographic conditions to material availability, natural elements, or available infrastructure. Together, these factors offer opportunities or impose restrictions on the business model you are seeking to develop.

When developing a strategy, it is important to distinguish between (1) strategy as a plan and (2) strategy as a process (Mintzberg, 1987; Mintzberg et al., 1998). In the first case, strategy is used as a design or blueprint which specifies in detail what to do, when, and under what circumstances. We often see this approach used by organizations because it gives guidance in calculating cost–benefit ratios, provides so-called benchmarks or milestones, and you can easily apply financial indicators to it. In contrast, strategy as a process is about plotting a path in general terms, in which benchmarks and performance indicators do not play a dominant role. Your strategy is rather a sketch that allows you to get where you want to be with greater flexibility. In other words, strategy as a flexible process takes into account all kinds of factors such as traffic, weather, your mood, the progress of the route and, if you wish, a lot of other elements. You broadly know where you are going, but you can easily adapt your course. Depending on your approach to strategy formulation, you can use different tools.

Whichever strategic approach you choose, you should always make it clear from the start where you are headed and be aware that you will need to make choices along the way and that your choices have consequences. The core of the strategy building block is determining the route along which you can best realize your proposition, given your stakeholders and the contextual factors. A strategy is therefore fundamentally a matter of clear, reasoned and actionable choices.

For the BMT, we distinguish six strategies that can be used, be deployed, or underpin the development of sustainable business models: (1) eco-efficiency, (2) product as a service, (3) use optimization, (4) lifespan extension, (5) cascading, and (6) community building. Each of these strategies can be used either stand-alone or in a balanced combination while developing one of the business model archetypes. To help you make clear choices we provide a brief description for each of these strategies below.

Definition

Eco-efficiency

The eco-efficiency strategy focuses on the low-hanging fruit, the reduction of the use of material and energy throughout the life of a product, but also increasing output using the same amount of input. This strategy is often used to reduce negative effects (such as waste, the emission of toxic substances, the use of pesticides). This strategy was launched in the 1990s by the World Business Council for Sustainable Development (WBCSD). This approach can enable organizations to reduce their carbon and wider environmental footprint, but in principle, organizations will keep doing the same things, so it does not represent a business model innovation.

Definition

Product as a Service/Servitization

The essence of the product-as-a-service strategy is to market the function of a product, rather than selling a product. For example, companies like Phillips or Urbanvolt (urbanvolt.com) selling light instead of a lamp or lightbulb, or companies selling heat instead of a central heating system and so on and so forth. PAAS can lead to dematerialization, which means making fewer things, while still having access to the functions. For companies that opt for this strategy, this will lead to different design choices with a focus on lifespan extension and quality, new and often more elaborate forms of service, and appropriate logistics networks. It can ultimately mean that ownership relationships of a product change. There are three common forms of this strategy (derived from the typology of Tukker & Tischner, 2006).¹

• Product-oriented service strategy: This consists of the sale of a product with, for example, a (mandatory) maintenance package, or the more or less compulsory purchase of consumables that enable the product to function. Consider, for example, a printer that only accepts toners of its own brand, a car for which you can only use the batteries of that brand, or a camera for which only one kind of memory card or film can be used.

• Use-oriented service strategy: The supplier remains the owner of the product and grants access to its use through a rental or lease contract. The supplier remains responsible for the maintenance of the product. An interesting thing about this strategy is that it is important for the manufacturer to make a product that will last as long as possible, and, when it breaks down, can be repaired as easily as possible. Think of the example of Bundles working with Miele to sell consumers a subscription to washes instead of washing machines and tumble dryers.

• Result-oriented service strategy: Here agreements are made about the result, and not about the product. The customer pays for the purchase of a unit of the product (e.g. per print, per wash, per night), or for the functional result. Philips sells light, Auping (www.auping.com) sells a good night’s sleep.

Frequently, many of these PAAS strategies are combined with a (compulsory) subscription. This could mean that the consumer is obliged to purchase a certain number of washes, units of washing powder, or boxes of toner. One step further is that such a subscription also entails the obligation to purchase electricity of one specific brand. The degree of sustainability of these different product–service system strategies ultimately depends on the extent to which it leads to an actual reduction of the production of goods (and therefore less use of raw materials) and the use of energy, water, soap, or toner, and so on. It is also interesting that the PAAS strategy tends to focus primarily on environmental sustainability (the ecological side), and that the social component is often included less. That is remarkable, because PAAS requires, in addition to hardware, extra input from people.

Definition

Use optimization

The use optimization strategy builds on the premise that many assets and products (chairs, buildings, cars) are not fully utilized. We also call this unused capacity idle capacity. We make, organize, and arrange a lot that we do not use and then discard it. That is a waste of time, energy, creativity, raw materials, or the transport involved. Organizing a (digital) platform that provides a catalogue of this idle capacity and connects it can lead to optimization of use.

Definition

Lifespan extension

The essence of the lifespan extension strategy is maximizing the value retention of a product. Extending service life—sometimes referred to as lifespan extension—starts with the design of a product and is guided by, among other things, choice of material, design for repair, and design for recycling. Essential to this strategy is to design products and the components they are made with so that they can be used in a second, third, fourth, or nth cycle of use with as little loss of properties (and therefore value) as possible. Lifespan extension is considered a central strategy in the circular economy (Bakker et al., 2015).

Example

• Extending the lifespan of pruning shears

• Felco has fully committed to preserving the lifespan of its pruning shears. All pruning shears parts are replaceable, right down to the handles. The shears have been designed in such a way that users can replace the broken parts themselves (Felco, www.felco.com).

Definition

Cascading

Cascading involves the joint design of a loop with multiple parties. By creating the cascade together, you also create a business model together. The essence of cascading is the maximum use of materials and/or residual flows between these parties. One type of cascading is conversion: the conversion of residual flows into new raw materials (e.g. the conversion of sewage sludge into biogas). Another form is substitution. This form focuses on the replacement of materials and raw materials by more sustainable alternatives (e.g. lignin from roadside grass as a binder in asphalt). The crux of this strategy is that it is not achieved without cooperation between the parties.

Definition

Community building

Finally, the community building strategy is about consciously organizing joint value creation for and within a community, often focused on facilities such as energy, care, or food (Jonker & Faber, 2015). Such a community can be an area or a neighbourhood, but also an entire village. The central assumption is that in every community, there are all kinds of capabilities or capacities that are either not utilized at all or do not come into their own. This strategy is based on making better use of those social and institutional capacities. What does it take to give a neighbourhood energy autonomy? That is not only a financial issue (where does the money come from?) or a technical issue (with matters such as an appropriate energy mix, a smart grid, and perhaps the use of cryptotechnology), but above all a management or control issue. As a neighbourhood, could we set up an organization with our people? And can people who work for that company be paid or partially paid with, for example, electricity, or mobility, or food?

1.1 A Short Reflection

A number of the strategies mentioned above primarily focus on the resource, or, in other words, the material side of sustainability. These strategies are ultimately about reducing the use of raw materials and the negative impact that transformation and the use of these raw materials have. For example, producing and using a car has a significant negative, material, and ecological impact, and a pair of jeans has a major impact during its use because of the repeated washing and the energy and chemicals used in that process.

This means that these strategies are particularly useful for those sustainability issues where the raw material challenge is at the centre. Consequently, they are less meaningful if there is a more social or ecological sustainability issue at stake. Attempting to reduce the amount of raw materials does not necessarily lead to more inclusion of people, nor does it automatically lead to the restoration of biodiversity. If this is your actual intention, you will have to make a conscious choice to take aspects from the various strategies and, if necessary, supplement things. The kind of strategy formulation which requires tinkering with strategy is referred to as strategic bricolage. Be mindful that strategic bricolage will affect and determine the impact of your business model and the different types of value you create (see Chapters 11 and 12). It can lead to juggling with indicators and various types of impacts and your task will be to make sure it remains workable.

2 Tools

A number of the tools we presented earlier are, with some adjustments, also suitable to be used again here (see, for example, Chapter 3—Motive and Context, and Chapter 4—The Dream). Below, we outline a selection of tools which align with the two distinct approaches to strategy formulation: (1) analytical tools which support strategy as a plan, for example SWOT and DESTEP, and (2) conceptual tools which support strategy as a route, for example brainstorming, mind mapping, and gaming.

2.1 Strategy as a Plan: Analytical Tools

The most straightforward advice here is to start with one of the well-known tools such as a SWOT, DESTEP, Porter’s strength analysis, McKinsey’s 7S model, Lewin’s driving and restraining forces or similar strength and weakness analysis (just searching the internet provides a range of ready-to-use instruments). Combine tools for external and internal analyses and apply these as systematically as possible. Preferably work visually (e.g. using Post-its® on large A0 sheets), and do this together with the team, the colleagues, or other parties (see Chapter 7—Parties Involved) that are involved in the business model you are developing. You can also explore working with dynamic digital tools, examples of which can be found on the internet. A good and recent example is the eight-step business model portfolio (see: www.managementimpact.nl/artikel/een-businessmodelportfolio-analyseren-8-stappen) based on the work of Aversa et al. (2017).

However, whenever you choose to work with ready-made tools, be mindful that all tools and frameworks are based on certain logic(s) and will therefore have their own particular perspectives and blind spots (perhaps not always immediately obvious at first glance). One perspective might reflect the dynamics in the environment, while another is about competitiveness or the match between your core activities and the changing requirements in the environment. And perhaps even more importantly, the bulk of these tools emerged in the context of a linear economy over the past 50 years. The majority of them have an organization-centred perspective and thus tend to adhere to a straightforward cost–benefit analysis. After all, only very recently has greater importance been attached to sustainability, multiple value creation, inclusivity, and value retention by organizing circularity, let alone a regenerative or restorative economy. While there are emerging tools which promise to include these aspects of strategy, on closer inspection these wider concerns are largely treated superficially.

2.2 Strategy as a Route: Conceptual Tools

This strategic approach gives much more freedom to think from a certain point of departure about the specific point on the horizon you are aiming towards and how you want to get there. The current Dutch government has taken this approach through their Big Hairy Audacious Goal (BHAG) and stated ambition for the Netherlands to be a 100% circular economy by 2050. But that also applies to propositions (see Chapter 5—Proposition), such as ‘No more single-use plastics in Dutch supermarkets by 2030’ or ‘What changes in legislation, business operations, and the chain are necessary to stop the practice of chick culling by 2025?’

All these horizons are perfectly defendable, but they require a hefty and above all new, often unknown, and collective organizational effort that involves all kinds of aspects (including fiscal, legal, organizational, material, moral, and international). When you think a little more about it, you will soon discover all kinds of more profound problems behind these problems. When you have tackled one issue as well as possible, a new problem will appear. It is not without reason that we call them wicked problems.

To make progress in solving these kinds of complex issues, you have to start from scratch. A white sheet of paper, literally, but also mentally. Can we forget for a second what we know and what we can do and start thinking from scratch about how we want to solve an issue? This requires a collective mindset. Because it is difficult, if not impossible, to work without a shared vision of the future towards solutions for that future. In practice this means brainstorming, exploring the seemingly impossible and creating scenarios about how the world could be—intentionally seeking to co-create and nudge a different future into being. Of course, while there are a whole range of brainstorming techniques, the essence of these is always to start with a blank canvas, be it a sheet of paper, or a physical or digital whiteboard. Ideally this kind of strategy formulation process is conducted in person whereby it is easier to facilitate interactions and ensure that everybody is engaged, has an opportunity to voice their perspective(s), and has genuinely bought into the collective vision and strategy developed. If online forums and tools are a necessity, it is even more important to take care to ensure that all participants are actively engaged in the process.

You will probably need to combine brainstorming with mind mapping. Fortunately, today there is a wide range of digital tools that can enable group ideation processes, such as (but not limited to): Popplet (creating mood boards), Stormboard (online whiteboard), Brainsparker (the inspiration for brainstorming techniques), Flock (group chat 2.0), Slack (group email), and Mindmeister (group mind mapping). The examples listed above can be found at tallyfy.com/brainstorming-tools.

3 Case Studies: Strategy

Case study: WashingGreen—eco-efficiency + life extension strategies

The WashingGreen B2B business model is ecologically more efficient than conventional washing in various ways. Firstly, no water is used in the CO₂ washing process. WashingGreen is, therefore, more efficient in water consumption than conventional washing. Secondly, WashingGreen is more energy-efficient than conventional washing machines, due to the fact that the LCO₂ (liquid carbon dioxide) washing machines require less energy than conventional washing machines. Thirdly, as the linen does not get wet in the CO₂ washing process, no drying process is required, contributing to considerable savings in energy costs. Fourth, this business model also incorporates the lifespan extension strategy: CO₂ washing is considerably better for the fabric because no drying process is involved and as a result, the fabrics last longer.

Case study: GreenGold—cascading + use optimization strategies

GreenGold’s value proposition is to establish an algae farm that uses excess CO₂, as well as excess heat and energy from a waste incinerator to grow animal feed. They have chosen to use cascading as the underlying strategy to realize this proposition. The cascade is reinforced with an element from the use optimization strategy. Cascading involves jointly designing a loop with several parties: in this instance, it relates to the CO₂ cycle. The cascade in this case is realized through a conversion of residual energy and CO₂ coming from other industrial processes (such as the incineration of waste) to grow algae, with dried algae as the end product. The dried algae are then sold as a very suitable component in animal feed. A key partner of GreenGold processes the algae into animal feed and resells it. In this way, multiple forms of value are created in a cascade, and new resources arise based on residual flows—dried and/or ground algae as a component of animal fodder—resulting in a reduction of methane gas, for instance with cows.

Case study: GreeNet—community building strategy

Please bear in mind that the proposition of GreeNet is to address the litter problem at railway stations. It is suggested that a community building strategy be used to arrive at developing the proposition. This chosen strategy is about consciously organizing joint value creation for and within a community of all stakeholders involved. Keeping the trains and stations clean brings about a significant expense to be addressed by all stakeholders. Evidently it involves the passengers as well. Travellers can use a vending machine to hand in their litter (plastic bottles and paper cups) and will receive a small refund in exchange. The purpose of this is to involve travellers in the collection of the litter so that they realize that waste is a resource that can be converted into a product of value.

Case study: Plastic-eating mealworms—cascading strategy

The aim of this project is to close the loop by cleaning up plastic-residue streams by using mealworms that eat and digest the residues. To achieve this goal, the initiators of the project work alongside several parties that together form a loop. Think of waste-collectors, mealworm farmers, and residue users. Together they aim for the most efficient use of materials and residual flows between the various parties. As a result they operationalize a cascade strategy employing recovery of waste streams, conversion, and substitution.

Case study: Happee—strategy mix

The basis of Happee’s business model is to produce attractive-looking mobile urinals for use at festivals made from recovered and recycled bottle caps. The product is a sustainable and viable substitute for existing mobile urinals; however, Happee faced several strategic choices. Firstly, related to the merit of the product: here a use-oriented service strategy is applied by leasing the urinals, while Happee, as the producer, remains the owner of the urinal. The second strategic component extends the lifetime of the raw material—the plastic caps (lifespan extension strategy). By melting the plastic caps, these caps retain their value. Thirdly, a cascading strategy is also deployed: the urine that is collected in the urinals is transferred to the municipal water board, which then purifies urine and converts it into drinking water and other resources. The fourth and final strategy concerns community building. By placing attractive urinals at the festival and collecting urine with appropriate publicity as fun but also as a sustainable thing, Happee creates social awareness of the importance of separating waste. It goes without saying that the proper use of the urinals will result in a cleaner environment.

4 Everything Is Context

To realize your business model, you can choose from or combine the multiple strategies described in this chapter (eco-efficiency, product as a service, use optimization, lifespan extension, cascading, and community building). Which of these strategies or combinations thereof you choose depends on the specific circumstances and context in which you are seeking to realize your business model and the underlying value proposition. After formulating your strategy, it is time to think about the implementation of it which we refer to as choosing core activities.