In this post you will learn about the 11 key building blocks of a sustainable business model and how business model innovation can become your sustainability strategy secret weapon in the fight to deliver positive social and environmental impacts.
But remember – with great power comes great responsibility so use this new knowledge wisely.
For those that prefer to learn through video we have put together a short 5-minute video to explain these 11 building blocks so you can watch the video and then scroll to the end to read the case study.
One of the many challenges faced by Sustainability professionals is how to communicate the business case for our sustainability programs. We hear often that “management just don’t get it” and this leads to frustration and disappointment.
One of the biggest problems when we try to present our sustainability plans is that sustainability professionals speak a different language. We speak about the bigger sustainability context like climate change and loss of biodiversity, we try to convince people that reducing carbon emissions is important, or we espouse the virtues of achieving the United Nations Sustainable Development Goals.
Trying to convince the CFO, CEO or Board to invest in your sustainability program using this language is like trying to chase a parked car – the harder you run the more it is going to hurt because they have no idea what you are talking about.
Fortunately for us there is a concept that is used by millions of business professionals around the world that basically acts as a translator to convert your sustainability-idish language into something anyone within the business world can understand.
Your Secret Weapon for Communicating the Business Case for your Sustainability Strategy
One of the best ways to describe how a business (including components of a business like a sustainability strategy) is organized and delivers values to its customers is using a business model. A business model is how a company creates value for itself while delivering products and services for its customers.
Sustainable business models also capture economic, social, and environmental value for a wide range of stakeholders.
Business model innovation is also a powerful way to unlock new value from your sustainability strategy.
As it turns out, a really smart guy called Alexander Osterwalder found that there are nine key building blocks that can describe any business model from a multi-national corporation through to a small two-person professional practice which he called the Business Model Canvas. We add two additional building blocks to this business model canvas to allow us to describe a sustainable business model.
Value Proposition
The first element in describing a business model is the value proposition. The value proposition is the collection of products and services that meets the needs of your customers.
Customer segments
The next element is the customer segments to whom you deliver the value proposition. Various sets of customers are segmented based on their needs and characteristics. These segments could be mass market customers (sports fans) through to niche markets (fans of SlamBall which is a form of basketball played with four trampolines in front of each net and boards around the court edge – seriously this is a thing). For your sustainability strategy, your customer segments might also include internal customers like the engineering department as one segment and finance as another as each department has different needs.
Channels
Channels describe the way you deliver your products and services to your customer segments. Channels might include delivery of your services through a store front, a logistics company or in the case of sustainability perhaps an NGO.
Customer Relationships
For any business or sustainability strategy to succeed you need to establish a relationship with your customers. The customer relationship describes how you will engage with your customer and ranges from personal assistance (business coach) through to automated services like Amazon.com.
Revenue streams
To be sustainable, a business needs to understand how it makes income (captures value) from its customer segments.
The above elements describe the right-hand side of the business model canvas and capture of the things that we create and deliver to the various customer segments. The left-hand side of the canvas then describes the things we need to carry out the right-hand side of the canvas.
The left-hand side of the business model canvas includes:
Key Activities
These are the most important activities necessary to execute the value proposition. An example for Tesla might be creating an efficient supply chain to drive down the manufacturing costs of its electric vehicles.
Key Resources
The key resources to create value for the company. These resources/assets could be human, financial, physical and intellectual.
Key Partners
These are relationships with other organisations that support delivering your value proposition. An example for Tesla would be vehicle part manufacturers who deliver key components of the electric vehicles.
Cost Structure
Once we understand the key activities, resources, and the partners we need, it is relatively easy now to understand the costs associated with delivering the business model.
For Sustainable business models, we add two additional sections to the business model canvas; Beneficiaries and Sustainability Benefits.
Beneficiaries
This segment represents the broader stakeholders that capture value from your sustainable business model. This might be your clients, key stakeholders, or the community.
Sustainability Benefits
This segment captures the environmental and social benefits your sustainable business model delivers. Typically, with our clients we would express this in terms of the UN Sustainable Development Goals but equally these could be expressed in terms of measures important to your organisation such as carbon savings, water savings, jobs created and so on.
CASE STUDY – How Michelin used business model innovation to create profitable sustainability outcomes
Michelin tyres was facing strong competition in their business with haulage companies from low cost competitors. Michelin believed they had a superior technology but were not able to capture the value from it simply by competing on price. At the same time climate change regulation was impacting Michelin and their customers.
Michelin created a new product with a redesigned business model to give away their tires for free but charged their customers per kilometre. They installed computer chips in the tyres to measure performance such as distance and maintenance requirements.
They bundled this service with a range of professional services to help their customers reduce fuel consumption and optimise vehicle performance. This allowed Michelin and its customers to extract the maximum value from their products.
Their superior technology meant they could get more kilometres per tyre compared with low cost competitors and therefore because they were charging per kilometre they could also maximise revenue per tyre.
Michelin was incentivised to produce less tyres because the more kilometres they got out of a tyre the more revenue they could generate per tyre which meant less material usage, lower supply chain risks, and reduced carbon emissions (not to mention the reduced carbon emission for their customers due to fuel efficiency improvements). They were also now able to take a product stewardship role and recover the used tyres for recycling and re-entry into their manufacturing process.
Michelin were also able to create new customer relationship pathways by creating a direct relationship, stronger intimacy and deeper roots within their customer’s business.
The community were beneficiaries of this business model through less waste to landfill and reduced air pollution. Michelin were also able to support the outcomes of a range of the UN Sustainable Development Goals.
Conclusion
We use the above technique with our clients to uncover and unlock new value from their sustainability strategy or sustainability projects. We also use this technique to design, discuss and communicate new sustainability initiatives for our clients.
Using the above eleven segments you can describe the infrastructure, offering, customers, and finances of any sustainable business model and you can now design, discuss, and communicate your sustainability programs in a language people will understand.
If you think that business model innovation could help you deliver positive environmental or social impacts for your sustainability strategy then you may want to learn more about our Sustainability Launchpad program which is based on three Silicon Valley concepts; the Business Model Canvas, the Lean Start-up method, and Agile Management.