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Slide 1

ENT202 / Innovation: Strategies and Systems

Week 7: Sustainable business model

College of Business and Law

Karmen Lužar

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Slide 2

Recognition of Traditional owners and Indigenous cultures

Charles Darwin University acknowledges the traditional custodians of the land on which we’re meeting and pays respect to Elders both past and present and extends that respect to all Aboriginal and Torres Strait Islander people.

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Slide 3

Business model

• 1940s origin of the concept ‘business model’

• Opens new perspectives for innovation

• Examples of business model innovations: low-cost aviation, free press, social business, car-sharing, collaborative platforms

• Different reasons to innovate through a business model, e.g. new technology outdating current value-capture methods, redefinition of an organisation’s mission, etc. - sustainable development plays a prominent role!

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Slide 4

What is a business model?

• The business model describes the principles according to which an organisation creates, distributes and captures value.

• 3 key building blocks:

• The value proposition

• The value architecture

• The economic equation

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Slide 5

Business model canvas (BMC)

Osterwalder and Pigneur, 2005

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Slide 6

Value proposition

• It is the reason why a customer chooses one company over another to solve a problem or satisfy a need.

• Benefits obtained in comparison with the consented sacrifices (client’s perception of value).

• Communication to stimulate a favorable evaluation is central, especially when a change of consumer behavior is demanded (e.g. carpooling).

• Diverse value drivers: Design, performance, innovativeness, service, accessibility, low cost, etc.

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Slide 7

Target market

• A value proposition is strictly related to the potential customers = target market.

• Business model takes a broader view to understand the sources of value creation, distribution and capture: • Mass market: a single value proposition for “all”.

• A segmented market (various segments that vary in their needs, their expectations or their behaviors): a unique value proposition for one or more segments or niches having specific needs or problems to be solved – customization.

• Multiple markets: value for involved specific markets, e.g. real- estate: buyer and seller.

• Diversification: a) meeting different, but interrelated needs or b) aiming to address completely disconnected markets.

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Slide 8

Distribution channels

• To reach its target market via distribution and communication channels.

• Direct or indirect channels (internal or external).

• Can be a central element of the competitive advantage or differentiation.

• Distribution channels will concern all the touchpoints in a client’s “life cycle” with a company: awareness, evaluation, purchase, delivery and after sales. – Internet a ‘game changer’.

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Slide 9

Customer relationship management • Defines the kind of connection a firm wishes to establish

with its customers:

• Personal assistance: based on the human interaction between the company’s staff and customers - can powerfully shape the customer experience.

• Self-service: customer manages the interface, while the company provides the means and tools for self-servicing.

• Automated relations: founded on the exploitation and analysis of patterns of customer data.

• Community relations: exchange within a community of users.

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Slide 10

Key resources

• Configuring a value chain and allocating resources are at the core of the strategy activity.

• The resources of a company are vital in building its competitive advantage.

• The key strategic resources of a company include:

• Human resources

• Intangible resources

• Physical resources

• Financial resources

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Slide 11

Key activities

• A value chain organises and structures the various company activities - identifying those that most contribute to the company competitiveness.

• Depend on the nature of the company.

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Slide 12

Key partnerships

• Managing strategic links and interactions with different actors in a market is central to enable the company to advance toward its objectives.

• Potentially many and diverse – motivation varies (from traditional customer–supplier relation to interest in new resources or activities, pool expensive infrastructures, obtain economies of scale or reduce risks).

• Example: EV Ready

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Slide 13

Cost structure

• The choice of key activities, key resources, distribution channels, ways of managing customer relationships and partnership management will directly affect the cost structure depending on their scale and configuration.

• Cost-structure assessment can be an innovation source (e.g. Michelin Fleet Solutions).

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Slide 14

Revenue streams

• A variety of mechanisms to build revenue streams:

• Usage fee

• Subscription fee

• Lending/renting/leasing

• Licensing

• Brokerage fees

• Success fees

• Advertising

• Combinations possible (e.g. Sportify).

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Slide 15

Triple bottom line

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Slide 16

Sustainability and BMC

• Sustainable business model canvas (SBMC) builds on the traditional model, adding blocks to address costs and benefits for society and environment.

• 13 blocks are eminently related to each other, any modification in one block induces effects on others.

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Slide 17

Sustainable BMC

Adapted from www.strategyzer.com/canvas

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Slide 18

Cost for society and environment

• Any relevant negative impact toward its stakeholders and the environment.

• Examples include:

• Biodiversity damages

• GHG emissions

• Perturbations to its neighboring communities

• Negative impact on health

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Slide 19

Shared costs

• Some of the social and environmental negative impacts can represent a financial burden for the company.

• A company is actually destroying value creation for itself (affecting its balance sheet) and its stakeholders.

• Examples include:

• Energy consumption

• Lack of projects’ social acceptance causing delays (opportunity costs)

• Expensive raw material made up of finite resources (e.g. rare earth materials)

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Slide 20

Benefits for society and environment • By providing the society with social and environmental

benefits through its operations, the company increases its social legitimacy and influence.

• A lower footprint than the sector’s standards.

• Examples include:

• The contribution to the restoration of the biodiversity

• Positive impact on health of local population

• Stimulation of local employment

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Slide 21

Shared benefits

• Economic interests of a company align with stakeholders’ expectations and future generations’ needs - taking into account social and environmental issues.

• Examples include:

• Saving costs by reducing the amount of raw materials used in the operation

• Relying on free ecological services as an activity contributing to the delivery of the value proposition

• Increasing the spaces of differentiation and contributing to enhance a positive image

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Slide 22

Bibliography

• Sempels, C & Hoffmann J 2013, ‘Chapter 2’ in Sustainable Innovation Strategy: Creating Value in a World of Finite Resources, Palgrave Macmillan.

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Slide 23

Next week…

• Eco-efficiency and eco-design

• Tutorial reading for today (read before the tutorial): Bocken, N, M, P, Short, S, W, Rana, P & Evans, S 2014, ‘A literature and practice review to develop sustainable business model archetypes’, Journal of Cleaner Production, 65:42–56.

• Tutorial reading for week 8: None.

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