What is a sustainable business model? A seven-point plan
Sustainable business models are the next big thing for organisations. Why? For the simple reason that business as usual won’t allow us to meet the huge environmental and social challenges we currently face.
From food security to energy security to social inequality, business as usual isn’t the answer. Business models driven purely by profit, with no consideration of environmental impact and no recognition of the social value of goods and services, will not prosper in a sustainable future.
But, what is a sustainable business model? In “business model speak” it describes how an organisation creates, delivers and captures value in a truly sustainable way. It is the way to deliver commercial success, within environmental limits, while delivering products and services that improve people’s quality of life.
What a sustainable business model is not is creeping incrementalism – tweaks here and a spot of product innovation there. Transitioning to a sustainable business model requires wholescale transformation of how a business does business.
The good news is that a sustainable business model can exist in an unsustainable world. It is the model for the business, not the overall economy. However, transitioning to a sustainable business model will identify ways that the wider political and economic system needs to change – and is therefore a good route to broader system innovation.
Last night we held our second Business Network event at our new office in New York. The purpose was to explore what the transition to sustainable business models looks like in practice. We heard from two of our leading business partners, Richard Gillies, Director of Plan A at Marks and Spencer, and Dan Bena, Director of Sustainable Development at PepsiCo.
Both speakers gave brilliant insights into their companies’ journeys towards sustainability. But, despite fantastic progress in both companies, it was clear that the truly sustainable business model was still a little way off.
However, based on the conversation we had last night, I’d like to propose seven ways that organisations can begin the transition towards a sustainable business model.
Experiment with new financing mechanisms. These could include forward purchase agreements for suppliers to allow them to experiment with new production methods, match funding arrangements with government bodies, and the really effective concept of a sustainable innovation or investment fund – a pot of money held centrally which effectively seed funds new ideas, or provides top-up funding to make something happen which is outside current operating budgets. PepsiCo has a sustainable investment fund, M&S a sustainable innovation fund, and both companies are using these central pots of cash to successfully kick-start sustainable innovations across their businesses.
Aim to profit from sustainability. Don't view the sustainability programme as a cost; view it as an investment that will yield financial benefits to the business. A great example here is Marks and Spencer's Plan A. In year one of the plan this was framed as a £200 million investment, in Year two the plan was cost-neutral, in Year three it generated £50 million net profit from a mixture of resource efficiencies and creation of new products.
Integrate sustainability thinking into the DNA of the business. From incorporating sustainability performance into cash bonus schemes to embarking on full-blown change management programmes, both approaches will bring sustainability into the heart of the business. This will shift perceptions of sustainability from being just 'another thing to do'. Fundamentally, this integration means redefining your organisation's view of what internal success looks like. Reward and recognise your staff for making sustainability a success.
Recognise the need to change the value proposition. In our current consumption-driven society, value is often associated with volume. But buying lots and lots of 'stuff', which maybe we don't need, and we end up throwing away after one use, isn't the path towards sustainability. Businesses need to harness the power of their brand and marketers to help consumers equate quality with attributes other than volume. Quality should also be about where and how something was made (ethically), how it can be used (efficiently) and what happens when we've finished with it (recyclable). Ultimately, sustainability needs to be an attractive value proposition for everyone.
Start to shift your product portfolio. Either through choice editing (taking the sustainability villains off the shelves) or actively promoting the more sustainable choice (healthier, greener); start to ensure that the product portfolio begins to reflect your sustainability policy aspirations, not business as usual.
Be clear what the journey towards a truly sustainable business model looks like. Identify the transformational changes that the business needs to make. By having a clear road map towards sustainability, a business is less likely to shuffle forwards with just small incremental tweaks. The goal is transformational jumps, not incremental chunks.
Innovate, innovate, innovate. Everywhere. From product design to service delivery, to internal and external communication, to business strategy planning, innovation is key to delivering the holy grail of a sustainable business model.
Both M&S and PepsiCo are well down the road towards a sustainable business model. We urgently need other businesses to join them on the journey.
Comments
I was hoping to read something on what a sustainable business model might be? I wonder why it is that F4F does not specify more clearly that businesses that it currently puts its name to, like Tesco for example, are not sustainable business models?
I think you can do much better than this, but it might require a little research?
You're right of course, the blog isn't intended to go into detail about what a sustainable business model is - it is more intended to indicate how a company might start to make the transition. In terms of researching the detail of what a sustainable business model is - in detail - we're doing that right now - and will share our thoughts soon. Much of what we mean by a sustainable business model is informed by working with our partners who are experimenting with different, more sustainable business models.
Which brings me to your other point - in the same way that we point to examples of business partners who are very publicly experimenting with sustainable business models, why don't we point out those that are not so far on this journey? For the simple reason that showcasing pioneering practice is a proven way of speeding up progress - it really can prompt a 'me too' response. Which is a good thing.
We do indeed work with businesses who, on the face of it, might be less further down the road to sustainability. Or, indeed, are perceived by some quarters as actually blocking progress. This is where our corporate engagement criteria come in. All of our business partners have to commit to annual targets which are an expression of how we will work together to deliver change towards sustainability. This change could be a new business strategy with sustainability at its heart (not somewhere floating in the ether), or could be the development of a new, sustainable product.
We are happy that all of our business partners are currently on a journey towards sustainability. Some are going faster than others and different businesses approach this complex area in different ways. Have you seen Tesco's carbon reduction targets? They are bold and ambitious - and Tesco will in all probability achieve them. Which is another good thing.
It's an imperfect world. There isn't a truly sustainable business out there right now. Our role at Forum is to speed up that transition. And that will often mean engagement in unlikely quarters.
Dear Sally and FftF:
There is so much I like in Sally’s blog item and the longer article on “Sustainable Business Models.” It came along at a good point and I actually quoted from it during a recent talk. However, I think I detect a strain of undue optimism, an unwillingness to say the second “S” word—“Sacrifice,” and stay on safe, albeit bold, ground. (This is reinforced by another piece on “Smart Consumption,” quoting Sir Terry Leahy about keeping things pleasant, with which you agree.”)
Certainly, it’s easier to be heard and probably be persuasive communicators with a “positive,” easier-to-take message, and avoid the “hair-shirt” stereotype with which environmentalists are sometimes hit.
But as shared keepers and educators of the meaning of “Sustainability,” it is not totally legitimate, in my view, to infer that we won’t have to go to painful territory. We certainly don’t know we won’t have to sacrifice, and avoidance of this theme does not get people ready for that possible future. We certainly have been called to sacrifice at times in our history; it is not beyond us to respond, even if we have to be reminded of this at times by (very rare and brave) political and other leaders.
One of the reasons I say the above is the paradox between the many creative insights you have about components of the still-evolving nature of a sustainable business model, what it is not (“creeping incrementalism”—wow!), and even more so the need for it (“business as usual won’t allow us to meet the huge environmental and social challenges we currently face”—wow again!)—and the statement “The good news is that a sustainable business model can exist (my emphasis) in an unsustainable world.”
I don’t see how the latter is at all possible, except if the underlying perspective of a sustainable business model is seen in a still-restricted, idiosyncratic way. Otherwise, how is it possible for any element of a broader system to be viable in the long term when the system itself is in danger of long term failure? It’s almost as if the subsystem can be cut-off from the system—which it can’t.
You actually say some helpful things about (a) the relationship between the subsystem and the system by saying in the “Smart Consumption” piece “(It can) shape the transition towards a more sustainable future…” But you need more on this “shaping;” (b) you do distinguish between the “model” and the overall economy. But these are still interrelated; and (c) the model “will identify ways that the wider political and economic system needs to change—and therefore a good route to broader system innovation.” But what is this route and where does the sustainable-business-in-development fit in?
It is less helpful to contrast the promotion of this model with “hand-wringing” about certain explicitly systems changing approaches, including the passive “waiting (for them) to be dismantled.” Why can’t such a business play an active role as part of its business strategy in seeking to make these probably needed changes also? We are actually starting to see some of this, but we need much, much more.
I also think that while it is very conventional to cite the model as being “practical,” I recall a colleague who said that in the wake of needed big changes “There is nothing more impractical than being practical.” Also, certain things that are “practical” today were once an (impractical) gleam in some innovator’s eye.
I wouldn’t be so critical if I didn’t see the many positives in your work.
I look forward to reading a couple of the other pieces about your take on carbon trading since this has been on my mind, too, and your approach appears similarly fresh.
Regards,
Matt Polsky
Senior Fellow
Institute for Sustainable Enterprise
Fairleigh Dickinson University
P.S. Is my hunch correct that FftF is new to the U.S. and New York City?
I think brands are really looking at the sustainable business model in a much more dimensional way now, with looking at all angles. I attended something where M&S gave a talk about their plans and it was inspiring to listening and hear how they were thinking about it. Your list is a good all round list, I especially like point 3 - Integrate sustainability thinking into the DNA of the business and believe this is a great starting point for businesses having read the Alliance Boots Individual Ownership of the CSR agenda is key it really rang true that having everyone think about how to improve the company makes it something achievable and something that is being approached from so many different levels and angles. Great article and definitly one companies can take something from.
Over years and generations the ideology of man about the construction of his home has completely changed. Being an admirer of newness, man is trying out every possible way to incorporate the newness to his home. This is rather evident as irrespective of being an old home or an already built home, newness is brought into, through a number of modes, deconstruction and the remodeling in particular as such. The same strategy is thus depended on even in the building and constructing of the luxurious homes as such. Thus it is rather true to claim that neither the newness nor the luxuriousness can stand of their own as both are interrelated and interdependent too. This fact is realized by the customer and the builder on equal grounds as such.
The builders too feel free to introduce and incorporate their ideas into the new luxury homes and this definitely adds beauty and attractiveness to the homes as such. The customers will always be obviously liberal at accepting the ideas, but will definitely try out or enquire for the cost effective means even in the building of the luxury homes. There are two ways of building the luxurious homes, as one deals with the intentionally building a luxurious home with the incorporation of custom and other relevant factors and another is to intentionally built a home of other slot say the custom home and get driven towards luxury. Hence it is the intention and the purpose of the customer which helps the builder to plan the design accordingly.
Today the new tactics and technologies might lead to the building of the homes with the adobe bricks, which is rather costly, but takes less time in building and also accounts for less maintenance in future too. The open floor plans are rather being common in the constructional arena and luxury to an extent is stretching its wings towards the glass walls too. The new luxury home builders are also found at stretching the home to almost an acre and so on. The custom doors and the Oakwood or Teakwood windows are rather being common too apart from the wooden floor and ceiling as well. Thus in the luxurious homes too some distinctive features of the custom homes as well as the green homes are also introduced deliberately.
Where is all the money coming from to support all this consumption of branding and little else (which is what is being suggested here)? The idea that the modern economy can function while everybody just goes around buying little or nothing simply because it's little or nothing with a branded ethical philosophy attached is all very well, but somewhere along the line some of this wealth has to be based on something real doesn't it? Which, if it's going to be real, is probably going to involve some sort of resource isn't it? Or do you genuinely believe that the entire global economy can one day grow exponentially based entirely on the consumption of branding?
Don’t confuse the business model with the economy
I seem to have been a little unclear, apologies. I'm not talking about consumption of branding.
Of course an economy has to be based on trading real goods and services. What I'm talking about in my starter tips, are ways in which a business model can become sustainable, not the way in which an entire economy can become sustainable.
The business model is just that - a model for a business. While there isn't a truly sustainable business out there right now, some organisations are making good progress.
We are much further from a what I would call a sustainable economy - an economy which serves the needs of the people of this planet, where natural goods and services are properly valued, and hence properly looked after. However, starting to transition business models onto a sustainable footing, is one way of showing what needs to happen in the broader economy to make it sustainable.
I completely agree with you there Matthew, just because something has a well known brand on it means its worth more, if you seen the same thing with a lower quality brand name on it you would not think twice to buying it.
www.ledtape.co
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