Jakob Utgård

Innovating for sustainability

Sustainable business models

A business model is the way a company creates, delivers, and captures value (Osterwalder & Pigneur, 2010). The business model describes how a business operates, collaborates with others, generates revenue, and provides value to customers. Osterwalder and Pigneur’s (2010) “Business Model Canvas” is a much-used framework that presents a business model in nine different parts. Figure 1 shows an example of the Business Model Canvas for Nestle Nespresso, taken from Joice and Paquin (2016).

A sustainable business model takes into account the impact on society and the environment, and has been defined as a business model that intends to reach long-term economic, social, and environmental goals, making it resilient and aligned with sustainable development objectives (Bocken et al., 2014).  As a tool to work with sustainable business models, the business model canvas has been extended to “the triple layered business model canvas”, adding layers for environmental and social impacts and benefits.

Sustainable business model innovation

Sustainable business model innovations are “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.” (Bocken et al 2014, p. 44).

Some typical examples of (more) sustainable business models are (Bocken et al. 2014):

  • Maximise material and energy efficiency: Using fewer resources to minimize waste and emissions.
  • Create value from waste: transforms waste into valuable resources for other processes
  • Substitute with renewables and natural processes: promotes the use of renewable resources and bio-inspired processes to reduce dependence on non-renewable resources.
  • Deliver functionality rather than ownership: offers services rather than products, reducing the material footprint by allowing customers to access functionality rather than owning products.
  • Adopt a stewardship role: sustainable practices across the value chain, from responsible sourcing to customer guidance, to promote environmental and societal welfare.
  • Encourage sufficiency: limit over-consumption by promoting longevity and responsible use of products, often integrating durability and second-hand markets.
  • Re-purpose the business for society/environment: creating social and environmental value as the main purpose, often as social entrepreneurs/social enterprises
  • Develop scale-up solutions: spread sustainable solutions more broadly

Product-service-systems

Product-service systems (PSS) are business models that provide a mix of products and services to satisfy the customer’s needs. In PSS, companies change from selling products to providing access to products and services. This often means that customers pay for using the product rather than ownership (Mont 2002). Examples include car-sharing programs, tool rental services, and leasing models for machinery or equipment. In product-oriented PSS, the business offers services related to the product, such as maintenance, repair, or recycling, while the customer still owns the product (Yang and Evans 2019). In use-oriented PSS, the product is owned by the provider and leased, rented, or shared with customers, who pay for access or usage rather than ownership. In result-oriented PSS, the customer pays for the outcome provided by the product, without direct use of the product itself (e.g. laundry services).

Product-service-systems may reduce the need for product manufacturing and all the resources included in this (Yang and Evans 2019). Example: Sharing cars reduces the demand for cars. When the provider is responsible for the product, they may also have stronger incentives to design products for quality, repairability and durability. In general, moving from products to services may “decouple” the economic activity from resource use.

På(fyll) is a Norwegian circular service aimed at reducing single-use plastic waste by delivering household products in reusable containers directly to customers’ homes. The service offers soaps, cleaning agents, and laundry detergents, provided in containers designed for multiple uses.  When a refill is needed, customers order through the website or by scanning a QR code on the container. Empty containers are collected, cleaned, refilled, and redistributed, promoting a more sustainable consumption cycle. På(fyll) is owned by Orkla Home and Personal Care, Æra, and Bakken & Bæck. Important collaborators are Orkla Home and Personal and Helthjem, the logistics partner. Source: På(fyll).

The sharing economy

Sharing economy services make it possible for individuals to share access to products, services, and resources, often through digital platforms. In the sharing economy, resources are temporarily exchanged or shared, typically coordinated through peer-to-peer (P2P) platforms. Examples include ride-sharing (e.g., Uber, Lyft), home-sharing (e.g., Airbnb), and collaborative consumption models (e.g., tool or car rentals).

By making it easy to share goods and services, the sharing economy can reduce the demand for new products and encourage more efficient use of resources. This potentially reduces the environmental impact from manufacturing, distribution, and disposal. Uber or similar services, for instance, may reduce the need for owning a car. On the other hand, making services more affordable can also increase consumption and resource use (a person who did not own a car may start using Uber more – this is an example of the rebound effect) (Martin 2016, Meshulam et al. 2023).

Generally, the sharing economy gives new opportunities for owners of resources to benefit from their resource (renting out their car, renting out their flat), and for users of the resource (cars and flats easier and cheaper available). The total effect for the environment depends on the saving of resources vs the extra use. Renting an extra room or flat to tourists on AirBnB may reduce the need for building new flats or hotels, but may encourage more tourism.

Another question in the sharing economy is the effects on society more broadly. Workers on platforms like Uber or Wolt are typically classified as independent contractors, leading to concerns over job security and wages (Schor et al. 2017). AirBnb has been criticized for reducing housing availability and increase rents in cities, which seem to generally be the case (Barron et al 2021).

Banning AirBnB in Barcelona. In Barcelona, the large amount of short-term rentals mainly through AirBnB has increased housing costs and reduced housing availability for local residents. Research from Garcia-Lopez et al (2020) found that in the top areas, AirBnB had increase housing rent for local citizens with 7%. The conversion of flats into short-term rentals also reduces the supply of housing for long-term tenants. In response, the city has implemented measures to regulate short-term rentals. In June 2024, the mayor announced plans to ban all short-term tourist apartment rentals by 2028, aiming to return over 10,000 apartments to the residential market. Sources: Garcia-Lopez et al (2020), BBC

Creating shared value

The shared value framework, developed by Porter and Kramer (2011), quickly gained popularity in business circles. The shared value concept argues that businesses can achieve economic success while addressing social and environmental challenges. Shared value is defined as “policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates” (Porter and Kramer 2011, p. 66). This approach argues that instead of engaging in superficial “corporate social responsibility”, companies should use the core business and the unique resources and expertise of the company to create economic value by creating social value (Porter & Kramer 2011).

The Shared Value Framework has three main strategies:

  1. Reconceiving products and markets. Companies can create shared value by developing products and services that meet societal needs. This can be creating affordable products for underserved markets, producing environmentally friendly goods, or designing products that improve health and well-being.For example, a food company could create healthier, affordable options.
  2. Redefining productivity in the value chain. Businesses can improve productivity by addressing societal challenges that affect their operations.By using resources more efficiently, companies can lower costs and reduce environmental impact. For instance, reducing water and energy consumption in manufacturing cuts costs and reduces environmental harm.
  3. Enabling local cluster development. Businesses don’t operate in isolation; they are part of a broader ecosystem of suppliers, institutions, and communities. Companies can benefit from investing in these clusters. For example, a company could invest in local education and training programs to develop a skilled workforce, benefiting both the community and the company.

The shared value perspective has also been criticized. Crane et al (2014) claims that CSV mainly repeats concepts from corporate social responsibility (CSR), stakeholder theory, and social innovation without providing new insights, and that CSV ignores decades of research on the relationship between CSR and financial results. They also claim that  CSV oversimplifies complex social issues by focusing on win-win situations, ignoring cases where social and economic objectives conflict. In addition, CSV assumes that companies will comply with legal and ethical standards, which is not always the case, in particular in globalized markets. Overall, according to Crane et al., CSV fails to address the systemic problems in capitalism by focusing on firm-level solutions rather than broader, systemic change. Dembed et al. (2016) conclude that shared value is vague, overlaps with other related concepts, lacks empirical support, and is more of a “buzzword” than a substantive concept.

References

Barron, K., Kung, E., & Proserpio, D. (2021). The Effect of Home-Sharing on House Prices and Rents: Evidence from Airbnb. Marketing Science, 40(1), 23–47. https://doi.org/10.1287/mksc.2020.1227.

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. https://doi.org/10.1016/j.jclepro.2013.11.039.

Crane, A., Palazzo, G., Spence, L. J., & Matten, D. (2014). Contesting the value of “creating shared value.” California Management Review, 56(2), 130–153..

Dembek, K., Singh, P., & Bhakoo, V. (2016). Literature Review of Shared Value: A Theoretical Concept or a Management Buzzword? Journal of Business Ethics, 137(2), 231–267. https://doi.org/10.1007/s10551-015-2554-z. Geissdoerfer, M.,

Vladimirova, D., & Evans, S. (2018). Sustainable business model innovation: A review. Journal of Cleaner Production, 198, 401–416. https://doi.org/10.1016/j.jclepro.2018.06.240.

Joyce, A., & Paquin, R. L. (2016). The triple layered business model canvas: A tool to design more sustainable business models. Journal of Cleaner Production, 135, 1474–1486. https://doi.org/10.1016/j.jclepro.2016.06.067.

Martin, C. J. (2016). The sharing economy: A pathway to sustainability or a nightmarish form of neoliberal capitalism? Ecological Economics, 121, 149–159. https://doi.org/10.1016/j.ecolecon.2015.11.027.

Meshulam, T., Goldberg, S., Ivanova, D., & Makov, T. (2023). The sharing economy is not always greener: A review and consolidation of empirical evidence. Environmental Research Letters, 19(1), 013004. https://doi.org/10.1088/1748-9326/ad0f00.

Mont, O. K. (2002). Clarifying the concept of product–service system. Journal of Cleaner Production, 10(3), 237–245. https://doi.org/10.1016/S0959-6526(01)00039-7.

Porter, M. E., & Kramer, M. R. (2011). Creating Shared Value. Harvard Business Review, 89(1/2), 62–77..

Schor, J. B., & Attwood‐Charles, W. (2017). The “sharing” economy: Labor, inequality, and social connection on for‐profit platforms. Sociology Compass, 11(8), e12493. https://doi.org/10.1111/soc4.12493.

Yang, M., & Evans, S. (2019). Product-service system business model archetypes and sustainability. Journal of Cleaner Production, 220, 1156–1166. https://doi.org/10.1016/j.jclepro.2019.02.067