Business Sustainability Strategies: Delivering Value through the Business Model
Owing to globalization, nature of business operations has undergone a huge change.
This has further led to increase in usage of resources and thereby increase in environmental impact. Firms are playing a dominant role in society today. The centrality of the role of business to society is always being viewed from multiple perspectives ranging from moral, legal, economic, strategic, social, and environmental. Apparently, business as usual is not an option for a sustainable future. The need of the hour is to develop and integrate sustainable strategies in the business itself.
Why Targeting Business Model is Important for Sustainability?
Environment friendly and socially responsible practices are part of firms’ sustainability agenda. However, these are insufficient to deliver a holistic change necessary to achieve long-term social and environmental sustainability. The current business models of most firms are restricted to short term goals, are revenue-centred and have a limited vision of running a ‘sustainable business’.
It requires firms to develop new ways of doing business in which environment depletion and social challenges are on top of business leaders’ priorities and are not counted as mere externalities. The firm should focus on creating business models focusing more on ‘the way you do business’, rather than ‘what you do’. They should innovate changes at the core of the business model to tackle pressing issues hindering the sustainable future.
Sustainable Business Models: Strategy
To make changes at the core of the business, firms should assess their business models from sustainability lens.
This can be achieved by using the elements proposed by Richardson, which involves three main elements: value proposition (product/service, customer segments and relationships); value creation & delivery system (key activities, resources, technologies, etc.); and value capture (cost structure and revenue streams) and redefining the elements from a sustainability paradigm.
- 1) Sustainable value proposition
In the context of sustainability, value proposition refers to stakeholders beyond the "classical" customer, or investors/shareholders. The firms should consider all other stakeholders such as employees, trade associations, suppliers, governments, non-governmental organisations, communities, but also the environment and society.
The preliminary stage is aligning stakeholders' objectives. With this firms should seek ways of doing business that benefits and satisfies both the internal and external stakeholders. They must also find opportunities to promote shared values.
In order to incorporate this approach into business, firms should emphasize on their stakeholder satisfaction performance. In this context, firms can count on technological, social and/or organisational innovations in the way they do business.
Further firms should define strategic drivers to orient their decisions on how to satisfy their internal and external stakeholders. This could be achieved by redefining productivity in the value chain and by clear corporate sustainability objective.
- 2) Sustainable value creation and delivery
This element “classically” encompasses business processes, such as Porter's primary activities (inbound logistics, production, outbound logistics, marketing and sales, services) and secondary activities (firm infrastructure, human resource management, information and communication technology, procurement).In context of sustainability , the management of business processes should consider not only economic, but also social and environmental drivers for decision making.
In order to enable this, the firm can count on its tangible and intangible capabilities and resources. Firms can push to develop specific business capabilities and resources, such as capability to innovate firm's business model, technologies to enable sustainable products and processes, responsible/sustainable leadership and reputation of corporate sustainability.
Additionally, firms can collaborate to bridge the gap between business interests and community development, with partners for research and development cooperation and with suppliers. Thus firm can address the complex nature of sustainability challenges by engaging the different stakeholders’ contributions.
In a nutshell, in order to put sustainable value creation and delivery in practice three things can be kept in mind: 1) what are the processes needed to deliver strategies, 2) what are the capabilities required to put the processes in practice?, and 3) what are the stakeholders' contributions?
- 3) Sustainable value capture
In the context of sustainability, economic results are not enough to ensure sustainable value capture. That is because sustainable development is about realizing value for the firm and all its stakeholders, considering not only short term impacts, but also long term consequences.
Triple Bottom Line performance indicators such Global Reporting Initiative (GRI) can be used to measure economic, environmental and social impacts of firms. For example, the investments in eco-efficiency enables value capture for the firm (reducing expenses with production inputs such as raw material, energy and water), for the environment (reducing depletion and promoting conservation of natural resources) and for society (reducing health problems due to less pollution and emissions).
Firms should transparently communicate their impacts in order to ensure sustainable value capture. Such communication helps to influence consumer decision which further results in firms’ growth. Moreover, firm should not only assess the value currently captured, but also the firm's sustainable value missed and destroyed. This can provide interesting insights to identify further opportunities for improvement of sustainability performance or for reducing economic, environmental and social risks.
Firms can seek stakeholders’ satisfaction, strategic drivers, business processes, capabilities and stakeholders’ contributions to better assess the firms’ business models, when seeking to promote sustainable value. Thus, business model shall provide a structured organization of the information about the firm’s performance in tandem addressing social and environmental issues while accounting for the long-term financial success of a firm.
Richardson, James, “The Business Model: An Integrative Framework for Strategy Execution,” Strategic Change, Vol. 17, No. 4, 2008
Written by Devendra Mittal
Devendra works with Goodera’s corporate clients to build their CSR Strategy and streamline the reporting process.
He also supports clients with GRI Standard reporting and undertaking strategic sustainability initiatives.