Session Seven

Question 1

Why do companies engage in sustainable business model innovation?

Answer 1

1. Entrepreneurial values – normative orientations such as “doing good”
2. Consumer awareness – expectation of responsible business, green products, increasing willingness to pay
3. Gain and maintain competitive advantage – differentiate products & services, develop unique market position, deal with changing market conditions
4. Costs of resources and supply risks – search for alternative inputs, reduce amount of resources used, source from waste and by-products
5. Regulation – industry-specific laws and regulations force companies to adopt new business practices

Question 1

Business Models for Sustainability

Answer 1

“A business model for sustainability helps describing, analyzing, managing, and communicating”

1. a company’s sustainable value proposition to its customers, and all other stakeholders,
2. how it creates and delivers this value,
3. and how it captures economic value
   while maintaining or regenerating natural, social, and economic capital beyond its organizational boundaries.”

Question 2

Barriers to Sustainable Business Model Innovation

Answer 2

1. Operational Issues: new materials/machinery too expensive, costly to establish new partnerships/infrastructures
2. Institutional Context: unfavourable regulatory and market incentives
3. Stakeholder Coordination: employees lack knowledge, suppliers don’t understand new model, marketing not able to promote green products
4. Customer and Demand: customers lack knowledge, traditional buying habits and price constraints, marketing is not able to promote green products

Question 3

Sustainable Business Models can generate Rebound Effects

Answer 3

• Rebound effect (or take-back effect) is the reduction in / disappearance of expected ecological gains from new technologies or business models that increase the efficiency of resource use, because of behavioural or other systemic responses.
• Rebound effects are especially likely when sustainable business models decrease the cost of accessing the product or service (ex: Vinted)
• The Jevons paradox is an even more extreme situation, where all gains from the increased resource efficiency are wiped out by increases in demandK

Question 4

Key Takeaways

Answer 4

• There are different types of sustainable business models, and different motivations to develop them
• Sustainable business models may be initiated by new entrants as well as large organizations / market incumbents
• Regulation and public incentives play a key role by framing the right economic incentives for sustainable business models to scale
• There are barriers and limits associated with sustainable business models (difficulty of impact assessment, unanticipated side effects (ex: rebound effects), or mission-drift)