The industrial sustainability literature reviewed suggests system thinking and whole system design techniques as being one of the critical ways to understand sustainable value. This section presents main ideas on system thinking, whole system design, systems innovation and sustainable business models as the key concepts for sustainable value creation.
2.1 Systems Thinking
Seiffert and Loch (2005) suggest that the most important property of systems is that they are made up of several parts that are not isolated, but closely interlinked, forming a complex structure. Systemic or systems thinking, facilitates the improved understanding of these complex systems and enables the identification and utilisation of interrelationships and linkages as opposed to things.
Systems thinking is a technique for investigating entire systems, seeking to understand the relationships, the interactions, and the boundaries between parts of a system (Senge et al. 2008; Cabrera and Cabrera 2015). Systems thinking is particularly well suited to modeling highly complex open-systems where an integrated understanding is required at both the micro and macro-levels in order to predict or manage change. This contrasts with the dominant analytical approach of the physical sciences, which is based on reductionism, analysing closed-systems at the level of their constituent parts and then simplifying to draw out general conclusions. Systems thinking is a generic term that spans a range of more than 20 tools and methodologies (Reynolds and Holwell 2010).
Senge (1990) explains that systems thinking is a discipline for seeing wholes. It is a framework for seeing interrelationships rather than things, for seeing patterns of change rather than static snapshots. It appears that systems thinking is a way of approaching problems: rather than applying a strict linear methodology, the techniques are iterative, and designed to stimulate investigation, discussion and debate by encouraging multiple perspectives. Systems thinking does not aim to provide quantifiable answers to specific problems, but rather provides a range of options and better understanding of the implications of those options (Meadows and Wright 2009; Madrazo and Senge 2011). Manzini and Vezzoli (2003) emphasise the need for design for sustainability to move from product thinking to system thinking.
Network analysis potentially provides the scope to integrate multiple factors (economic, social and environmental). Preliminary research on analysing sustainability within industrial networks has demonstrated the use of such tools in understanding how and why networks adopt sustainability initiatives and the significance of ‘focal’ companies within the network (Van Bommel 2011).
It is described by authors (e.g. Senge et al. 2008) that many of the current challenges in industrial systems stem from the inability to understand and manage dynamic systems. Systems Thinking takes a birds-eye view and observes the whole picture by focusing on the relationships between the different entities of a system, rather than on isolated parts. Systems thinking is described by authors (Hawken et al. 1999; Rocky Mountain Institute 2006; Senge et al. 2008; Evans et al. 2009; Charnley et al. 2011; Cabrera and Cabrera 2015) as providing the foundation for a proactive approach to be able to design sustainable industrial systems (e.g. Systems Thinking can be a way to understand complex, non-linear, and interconnected systems of businesses, whether social, managerial, economical or environmental issues). There is lack of evidence and understanding of what abilities do companies need to improve their industrial sustainability at systems level. An ability-based view is not presented.
2.2 Whole System Design
Whole systems design is one approach to sustainable design offering great potential, however the processes, principles, and methods guiding the whole systems approach are not clearly defined or understood by practicing designers or design educators (Charnley et al. 2011).
Evans et al. (2009) describes whilst it is important to address the impact of each aspect of the industrial system and pursue aggressive reduction in the impact of specific activities, we must also examine the operation of the whole system. Efficiently manufacturing products that are inefficient in use, for example, is not enough. This approach can even result in substantially negative outcomes when efficiency gains or cost reductions result in increases in consumption (the so-called Rebound Effect). The greatest opportunity to reduce the impact of the industrial system on the planet arises when we consider the whole system and the optimisation of any individual component of the industrial system.
Rocky Mountain Institute-RMI (2006) define whole system design as ‘optimising not just parts but the entire system … it takes ingenuity, intuition, and teamwork. Everything must be considered simultaneously and analysed to reveal mutually advantageous interactions (synergies) as well as undesirable ones’. Whole-systems thinkers see wholes instead of parts, interrelationships and patterns, rather than individual things and static snapshots. They seek solutions that simultaneously address multiple problems (Anarow et al. 2003). Lovins (2011) are among the small number of authors who suggest that understanding the dynamics of a system is integral to the whole system approach. The Rocky Mountain Institute (2004) highlights systems thinking as the method that should be utilised not only to point the way to solutions to particular resource problems, but also to reveal interconnections between problems, which often permits one solution to be leveraged to create many more. Meadows (2009) lists nine places to intervene in a system, in increasing order of impact: numbers (subsidies, taxes, standards), material stocks and flows, regulating negative feedback loops, driving positive feedback loops, information flows, the rules of the system (incentives, punishment, constraints), the power of self-organisation, the goals of the system, and the mindset or paradigm out of which the goals, rules, and feedback structures arise.
It is suggested by the authors that reframing the system with a whole systems view helps people to understand more fully the way manufacturing affects the world we live in and how we might begin to change it (i.e. redesign the industrial system). Understanding who is involved in the current system and how they interact with it can help identify more opportunities to create sustainable value. The field of whole systems design and the literature surrounding it remains limited (Coley and Lemon 2009). Evans et al. (2009) describes the evidence from the case studies implementing and shifting towards more sustainable manufacturing and demonstrates that dramatic improvements can be made at the level of sub-systems, such as factories or businesses. In parallel, however, it will be necessary to develop the understanding and capabilities necessary to enable changes in the whole industrial system. Anarow et al. (2003) state that “sustainability cannot be achieved in the absence of whole-systems thinking”, an ability that appears to be essential to improve industrial sustainability performance.
2.3 Systems Innovation
It is argued the innovations required for sustainable development need to move beyond incremental adjustments. Sustainable development requires the transformation of larger parts of production and consumption systems (Boons 2009). Incremental (product- and process-related) innovations in existing production and consumption systems may lead to further gradual improvements of sustainability performance, but in the end, incremental innovation frequently does not lead to a globally optimal system configuration in a multi-dimensional production and consumption system space (Larson 2000; Frenken et al. 2007; Vezzoli et al. 2008; Schaltegger and Wagner 2011).
While the term sustainable innovation has been widely used during the last decade, the number of definitions in the academic literature is limited (Holmes and Smart 2009; Boons and Lüdeke-Freund 2013). The review by Carrillo-Hermosilla et al. (2010) lists innovation definitions that focus on ecological sustainability, such as eco-innovation and environmental innovation. For instance, Carrillo-Hermosilla et al. (2010) introduced their own definition of eco-innovation: “innovation that improves environmental performance”. Charter et al. (2008) describes that given the challenges posed by sustainable development, sustainable innovation will often be characterised by systemness and radicalness. Generally, sustainable innovations go beyond regular product and process innovations and are future-oriented. Sustainable innovation goes beyond eco-innovation because it includes social objectives and is more clearly linked to the holistic and long-term process of sustainable development for the short- and long-term objectives of sustainability. Holmes and Smart (2009) describe the need for more research in sustainability-led innovations and partnerships.
Adams et al. (2016) presents a model of (SOI) sustainability-oriented innovation onto which sustainability oriented innovation practices and processes can be mapped:
Operational optimisation (e.g. eco-efficiency—compliance, efficiency, doing the same things better)
Organisationtinal transformation (e.g. new market opportunities—novel products, services or business models, doing good by doing new things)
Systems building (e.g. societal change—novel products, services or business models that are impossible to achieve alone, doing good by doing new things with others).
Adams et al. (2016) describe sustainability-oriented innovation as making intentional changes to an organisation’s philosophy and values, as well as to its products, processes or practices to serve the specific purpose of creating and realising social and environmental value in addition to economic returns.
Draper (2015) in the report—‘Creating the big shift: system innovation for sustainability, defines systems innovation as “a set of actions that shift a system—a city, a sector, an economy—onto a more sustainable path”. It is described in this definition; being able to identify the set of actions is important, systems change usually requires multiple interventions across different areas of society, it is very rare that a single person or innovation can change a whole complex system, such as waste or energy and tackling problems that are too large for any one organisation, however powerful, to solve on its own (e.g. shift systems to make them more resilient, more equitable and able to continue into the future). Draper (2015) states that there is an “absence of necessary skills in sectors that can take the innovation to scale”.
Sustainable development is argued by some authors to require radical and systemic innovations. Some authors argue these innovations can be more effectively created when building on the concept of business models. Sustainable business models provide the conceptual link between sustainable innovation and economic performance at higher system levels (Boons and Lüdeke-Freund 2013). Sustainable innovation is described by some authors to often be characterised by radicalness, some argue sustainable innovations go beyond regular product and process innovations and are future-oriented (Charter et al. 2008). Sustainable innovation is described by Charter et al. (2008) “Sustainable innovation is a process where sustainability considerations (environmental, social, and financial) are integrated into company systems from idea generation through to research and development (R&D) and commercialisation. This applies to products, services and technologies, as well as to new business and organisational models”.
2.4 Sustainable Business Models
Bocken et al. (2014) states that business model innovations for sustainability are defined as: innovations that create significant positive and/or significantly reduced negative impacts for the environment and/or society, through changes in the way the organisation and its value-network create, deliver value and capture value (i.e. create economic value) or change their value propositions. It is argued in Bocken et al. (2014) that to tackle the pressing challenges of a sustainable future, innovations need to introduce change at the core of the business model to tackle unsustainability at its source rather than as an add-on to counter-act negative outcomes of business. The level of ambition of business model innovations needs to be high and focused on maximising societal and environmental benefits, rather than economic gain only. The sustainable business model innovation describing radical changes in the way companies do business has received considerable attention from both academia and practitioners (Chesbrough 2010; Zott et al. 2011). Sustainability management deals with social, environmental and economic issues in an integrated manner to transform organisations in a way that they contribute to a sustainable development of the economy and society within the limits of the ecosystem. Leaders, managers and entrepreneurs are challenged to contribute to sustainable development on the individual, organisational and societal level. Scholars and practitioners are recently increasingly exploring if and how modified and completely new business models can help maintain or even increase economic prosperity by either radically reducing negative or creating positive external effects for the natural environment and society, literature surrounding this area is scarce and still emerging.
Organisations today are challenged to contribute to sustainable development on the individual, organisational and societal level. Sustainability management refers to approaches dealing with social, environmental and economic issues in an integrated manner to transform organisations in a way that they contribute to a sustainable development of the economy and society within the limits of the ecosystem e.g. (Starik and Kanashiro 2013; Schaltegger et al. 2012; Boons and Lüdeke-Freund 2013). It appears “technological fix”—is insufficient to create the required transformation of organisations, industries and societies towards more sustainability. Researchers and practitioners are therefore increasingly exploring how completely new business models can help maintain or even increase economic prosperity by either radically reducing negative or creating positive external effects for the natural environment and society e.g. (Boons and Lüdeke-Freund 2013; Hansen et al. 2009; Schaltegger et al. 2012; Stubbs and Cocklin 2008). This perspective does not only cover existing organisations and how their business models are transformed (e.g. Sommer 2012), but also entirely new business models pioneered by entrepreneurs. The literature on sustainable business models is still emerging.
The literature presents numerous views on what constitutes a business model (e.g. Richardson 2008). Teece (2010) provides a concise definition: a business model is the design or architecture of the value creation, delivery and capture mechanism of a firm, how the firm delivers value, how it attracts customers, and how it converts this to profit (Teece 2010). Richardson proposes a summary organised around the concept of value:
The value proposition—offering, target customer, differentiation;
The value creation and delivery system—The value chain required, resources, assets, processes, position in the value network relative to customers, competitors and collaborators;
The value capture system—How the firm makes money (financial model) and competitive strategy.
Evans et al. (2015) describe manufacturers are increasingly experimenting with new ways of meeting customers’ needs. This includes shifting from providing products to providing services, in a way that separates the use of a product from its ownership; or circular economy models where products are designed and manufactured for continuous reuse, and value is captured from ‘waste’ wherever possible.
The sustainable business model literature describes the concept of value proposition and the creation of creative positive benefits to its stakeholders. There a growing volume of industrial cases on sustainable business models, but little is known on how these improvements were conceived, little is available about specific abilities and competencies (Barth et al. 2007; Segalas et al. 2009; Willard et al. 2010; Teece 2010; Bocken et al. 2014). System transformation and value transformation appear to be importance concepts to the research enquiry.
2.5 New Concepts for Sustainable Value Creation—Negative Forms of Value
Very few authors have contributed towards understanding the creation of new systems and generating value across the value network in the sustainable business models literature by identifying failed value exchanges. Authors such as (Rana et al. 2013; Yang et al. 2013; Bocken et al. 2014) are the few authors that have contributed towards understanding opportunities for value creation. Yang et al. (2014) describe and define multiple forms of value (e.g. value absence, value surplus, value destroyed, value missed). Rana et al. (2013) and Bocken et al. (2014) in their research propose a framework for business model innovation for sustainability by explicitly considering value destroyed and value missed within the business model, as these often represent important opportunities for sustainability innovation. Their research provides a qualitative framework to facilitate systematic exploration of the different forms of value for each stakeholder (Fig. 1).
Value captured—current value proposition
Value destroyed—negative value outcomes of current model
Value missed—value currently squandered, lost or inadequately captured by current model
Value opportunities—new opportunities for additional value creation and capture through new activities and relationships.
Based on this, Yang et al. (2016) further propose value uncaptured as a new perspective for sustainable business model innovation. Value uncaptured is defined as the potential value, which could be captured but has not been captured yet. Four forms of value uncaptured, i.e. value surplus, value absence, value destroyed and values missed and an approach of analysis of multiple forms of value was proposed shown in Fig. 2 (Yang et al. 2013).
Value uncaptured exists in almost all companies. Some uncaptured value is visible, e.g. waste streams in production, co-products, under-utilised resources, and reusable components of broken products; some is invisible, e.g. over capacity of labour, insufficient use of expertise and knowledge. Reducing any kind of the uncaptured value would create sustainable value. Yang et al. (2016) propose a framework of using value uncaptured for sustainable business model innovation, and claims that sustainable business model innovation can be more easily achieved by identifying the value uncaptured in current business models, and then turning this new understanding of the current business into value opportunities that can lead to new business models with higher sustainable value.