RESTART Sustainable Business Model Innovation

Front matter

PALGRAVE STUDIES IN SUSTAINABLE BUSINESS In Association with Future Earth

Palgrave Studies in Sustainable Business In Association with Future Earth

Series Editors Paul Shrivastava Pennsylvania State University University Park, PA, USA

Foreword

Our world now appears to be gripped once more by zero-sum thinking and an intensifying “winner-takes-all” approach in a range of sectors. For companies choosing between sustainability and profitability, or economic growth and social equity, are artificially limiting the choices at our disposal. This is the case that Jorgensen and Pedersen make in this book—for companies to see that their viability and profitability are not threatened, but rather can be enhanced, by embracing sustainable practices.

The World Economic Forum recognizes the importance of changing this mind-set. This is why it has been working since its founding in 1971 to convene diverse stakeholders from government, business and civil society around a common agenda, to create win-win solutions and to transform false dichotomies into real synergies. It means being able to consider, as the authors do, the short- and long-term challenges and opportunities facing companies as they navigate conflicting interests and constituencies to balance growth, prosperity, sustainability and profitability.

For this reason, and in a world that is to an increasing extent divided and dominated by echo-chambers, this book could not be more timely.

By showing how to reconcile the bottom line and environmental sustainability, it points the way forward for any entrepreneur that has the best interest of its shareholders—as well as the planet—in mind.

Preface

“Dear passengers. We remind those of you who will be leaving the plane at Kigali International Airport that all plastic bags must be left on board. It is not allowed to bring bags into Rwanda.”

We looked at each other, and then we looked around. Quite right: the passengers took items out of their plastic bags and carried the contents out in their hands. We were not disembarking the plane in Rwanda—it was a stopover on the way to Kampala in Uganda. We went there to advise a delegation of the Ugandan authorities, led by the Minister of Water and Environment, Ephraim Kamuntu, as well as companies from the Eastern African countries, in their preparation for the United Nations Climate Change Conference in Paris in 2015, also known as COP21. The plastic problem that was the reason for the surprising message on the plane was a hot topic in Uganda and the other East African countries too. In the Indian Ocean off the coast of East Africa, there is an area full of plastic garbage—the Indian Ocean Garbage Patch, which is larger than South Africa and Ethiopia added together. There are five such patches in the world oceans—they have become symbols of pollution and ecosystem destruction, and they are increasing in size.

Therefore, Sveinung was not surprised when only six months later he stood on the grounds of The Plastic Bank in Port-Au-Prince, Haiti, along with one of the managers in the company. Sveinung was there doing ix x Preface research for this book, and together, they looked at the huge amounts of plastic garbage the company had collected by creating jobs for the poor people on the island. The Plastic Bank had simply realized that it could do two things at once: it could do business in a way that prevented plastic from reaching the sea. At the same time, it could become profitable and create jobs exactly by “turning trash into cash” and by collaborating with companies that use recycled plastic in their products. The Plastic Bank realized that plastic is not just waste, and it is not just a problem: it also represents a misuse of resources that have great economic value if brought back to productive use.

Today, we have all started getting used to companies, customers and authorities putting sustainability on the agenda—whether this relates to plastic or water, CO, emissions or additives in food production, human rights or gender equality, corruption or poverty. It has even come to the point where more and more companies are realizing that it is possible to be both sustainable and profitable. In our work, we meet small and large companies that find new and innovative ways of doing business that are less harmful to society and the environment. Not only that—many of the companies even aim to have a net positive footprint, for instance, by integrating United Nations’ Sustainable Development Goals (SDGs) into their strategies.

It has not always been like this. Quite a few years ago, we found ourselves in the Baltics, where we were working with a financial institution. The company was aiming to ensure that it conducted its banking practices in the region responsibly, even in a difficult market with corruption, money laundering and environmental criminality. At lunch with the company, one of the older managers in the company leaned over to Lars Jacob and said with a sly smile, We try to make this work—we really do. But remember: Until recently, the business model of our industry was ‘steal-andrun’. Since then, we have discussed sustainable business model innovation with everything from private equity firms in Oslo to investment banks in London, and there are indications that sustainability has become mainstream even in the financial industry (e.g., Jeucken 2010; Eurosif 2014; Eccles et al. 2011).

In our work as researchers and advisors for companies, we see how this happens across all industries—to an increasing extent and with increasing

Preface xi pace. In the years of research involved in writing this book, we have discussed alternative business models with the oil industry; had workshops with social entrepreneurs; brainstormed with fish-farming companies about the possibilities of green growth at sea; sparred with the automotive industry about the implications of the electric car revolution for its service market; discussed with logistics companies what the green transport system of the future could look like and worked with Norwegian entrepreneurs from various industries on the opportunities and challenges of bringing a sustainable business model to the global market. We work with an increasingly varied set of companies all over the world that have similar challenges: they all influence society and the environment, for better or worse, but how can they succeed in doing business in a way that allows them to align sustainability and profitability—both in the short and long term?

Questions like this are also at the core of our discussions with current and future managers at the master’s and executive courses in sustainable business model innovation that we teach in Norway and abroad: why has Apple taken the trouble to develop a robot that can dismantle old cell phones? What lies behind Renault’s decision to enter into a long-term relationship with a company that recycles steel? Why does Refettorio Gastromotiva in Rio de Janeiro collect soon-to-be-discarded food from grocery stores and have top Brazilian chefs cook three-course dinners for the homeless, while simultaneously offering cooking education to the poor? Why is it that LEGO will use one billion Danish kroner to find an alternative to the plastic used in the LEGO blocks? Why does Equinor (formerly Statoil) capture large amounts of CO2 and give it to scientists at the company CO2BIO, which cultivates algae for making nutritious fish feed? What makes companies such as Bright Products develop solar energy solutions for impoverished people in the African market? Why does the Norwegian consumer products company Orkla develop an organic and vegan alternative to its personal hygiene and laundry detergents and deliver these products in recycled plastic bottles? And what makes the aquaculture industry move its fish farms on land and collaborate with partners who can collect, rinse and dry the wastewater from the farms and turn it into fertilizer and energy?

We argue that these companies are doing what they are designed to do: they find problems that can be solved in profitable ways, and the natural xii Preface thing is to start with the problems that matter. But which problems are important enough so that customers are willing to pay to get them fixed? Many of the biggest problems we face as a society today relate to social and environmental sustainability. Contemporary business leaders face a sustainability problem of enormous dimensions. Research indicates that we already have to prepare for significant climate change, while overconsumption and population growth leads to depletion of key resources for both business and society. Simultaneously, the problem of poverty persists and causes distress, social unrest, corruption and an unstable society. These developments cause the ground to tremble under businesses that are now beginning to realize that “business as usual” may be going “out of business”. This is precisely why there are so many indications that in the coming decades, sustainability problems may be among the biggest sources of profitable business opportunities for the companies that embrace them (cf. Nidumolu et al. 2009; Porter and Kramer 2011). At the same time, of course, sustainability may be a source of major problems for companies that are not able to deal with these developments (e.g., Hofmann et al. 2014; Weber et al. 2010; Richardson et al. 2009).

Companies have played a big role in creating the problems we currently face around the world. This has severe consequences for the future of our planet and our societies. Moreover, it affects companies’ legitimacy in society and it matters for how regulators will choose to act in the face of growing social and environmental problems. This situation will greatly affect the conditions of doing business. There are expectations that states as well as international agreements will use both carrots and sticks in the wake of the COP21 climate summit in Paris and the development of the SDGs. In addition, not at least, the depletion of important natural resources that companies depend on will determine what production, logistics and consumption will look like in the future.

In this book, we argue that companies can be, and are becoming, an important part of the solution and that the problems we are talking about here are and will likely remain a source of business opportunities and competitive advantage. There are already plentiful examples of companies that change their business models in ways that allow them to contribute to a more sustainable world—either by improving their own footprint or by helping others to improve theirs (see, e.g., Jorgensen and

Preface xiii

Pedersen 2017a). Importantly, however, they try to do so in a manner that is compatible with, and can even promote, profitable operations.

This movement in a more sustainable direction is, however, probably just beginning. In order to get the necessary momentum and actually solve the sustainability problems we face today, there is a pressing need for fundamental business model innovations. Thus, the point of departure of this book is simple: In order for companies to be part of the solution rather than part of the problem, we need comprehensive changes to business models. And in order to achieve this, there is a need for knowledge to support such changes. In this book, we aim to contribute to these changes by developing a research-based framework for sustainable business model innovation. Our conceptual framework for what this entails is coined RESTART—an acronym of seven letters reflecting seven key characteristics related to business models. Such a RESTART of business is likely to require large-scale sustainable business model innovation, in which companies add more value than they take. More sustainable business models will need to address the social and environmental problems we face, be informed by the technological opportunity space of digitalization and the fourth industrial revolution and be adapted to the changing mindsets of consumers, employees and other stakeholders. This book provides a conceptual and empirical investigation of seven business model characteristics that are central to such a RESTART. It shows how business leaders can use it in practice and how it can spark new and important avenues of research on sustainable business model innovation.

The book comprises three parts. In part I, “What is the problem?”, we outline the purpose of the book. We discuss the need for sustainable business model innovation, explore three key trends and developments that are pushing us in that direction and briefly introduce the seven components of the RESTART framework. In part II, “The RESTART framework”, we develop the RESTART framework and discuss each of the seven components of the framework in depth. Finally, in part III, “Implications and future research”, we outline practical implications, including a process model for sustainable business model innovation, as well as avenues for future research, including two case studies based on the RESTART framework.

xiv Preface

For videos and materials based on this book and more information about us and our work, please visit our website www.JorgensenPedersen. no. We would love to hear from you, whether you are a manager, researcher, politician, student or simply a fellow citizen of this planet who also wants to engage in a RESTART. On our website, you can share your stories, insights and examples with us, and you can find out how to join the discussion on social media.

Lillehammer, Norway Sveinung Jørgensen Bergen, Norway Lars Jacob Tynes Pedersen References

Eccles, R. G., Feiner, A., & Verheyden, T. (2016). Sustainability and financial performance of Scandinavian companies. Unpublished manuscript, Harvard Business School.

Eurosif. (2014). European SRI study 2014. Paris: Eurosif.

Hofmann, H., Busse, C., Bode, C., & Henke, M. (2014). Sustainability-related supply chain risks: Conceptualization and management. Business Strategy and the Environment, 23(3), 160-172.

Jeucken, M. (2010). Sustainable finance and banking: The financial sector and the future of the planet. London: Routledge.

Jørgensen, S., & Pedersen, L. J. T. (2017a). Designing sustainable business models. In T. W. Andreassen, S. Clatworthy, M. Lüders, & T. Hillestad (Eds.), Innovating for trust. Cheltenham, UK: Edward Elgar Publishing.

Nidumolu, R., Prahalad, C. K., & Rangaswami, M. R. (2009). Why sustainability is now the key driver of innovation. Harvard Business Review, 87(9), 56-64.

Porter, M. E., & Kramer, M. R. (2011). Creating shared value: How to reinvent capitalism—And unleash a wave of innovation and growth. Harvard Business Review, 891-2), 62-77.

Richardson, K., Steffen, W., Schellnhuber, H. J., Alcamo, J., Barker, T., Kammen, D. M., & Stern, N. (2009). Climate change-global risks, challenges & decisions: Synthesis report. Copenhagen: Museum Tusculanum.

Weber, O., Scholz, R. W., & Michalik, G. (2010). Incorporating sustainability criteria into credit risk management. Business Strategy and the Environment, 19(1), 39-50.

Acknowledgments

Any book is the product of the sum of efforts, contributions and support of many different people, and this manuscript is no exception. The present work is the outcome of our joint research efforts since 2006, and we are grateful to all our collaborators who have inspired and informed us during this time and who have contributed directly and indirectly to this work.

We are grateful to our editor, Madeleine Holder at Palgrave Macmillan, who expertly and efficiently led us through the process toward publication. We also thank Gabriel Everington for his work in helping us prepare the manuscript for publication. We are highly grateful to the blind reviewers whose valuable comments allowed us to improve the manuscript substantially. We owe considerable gratitude to Professors László Zsolnai and Paul Shrivastava, who are editors of the Palgrave Studies in Sustainable Business In Association with Future Earth series, in which this book is included. We consider it a privilege that our book is published as part of this important and inspiring series.

We are grateful to our Norwegian editor Cappelen Damm Akademisk (CDA), which published an earlier and shorter version of the present work as RESTART: 7 veier til berekraftig business [RESTART: 7 Steps to Sustainable Business] in Norwegian in 2017. Thank you Dorte Ostreng, Lisbeth Opgien, Åsne Lund Godbolt and Wegard Kyoo Bergli and the rest of the editorial team at CDA. We are also immensely grateful to our

XV xvi Acknowledgments former editors at CDA, Tor Paulson and Erlend Aas Gulbrandsen, who have since joined us in academia. Tor and Erlend were “midwives” for the present work when stimulating us to write the book Ansvarlig og lonnsom [Responsible and Profitable] almost a decade ago, thus sending us on a journey that has culminated in this book.

We are very thankful for the support—financial and otherwise—from our respective institutions Inland Norway University of Applied Sciences and NHH Norwegian School of Economics. They have given us freedom to pursue the exciting adventures that have led to this book, and more generally allowed us to play entrepreneurial—or, rather, intrapreneurial— roles in our work with research, teaching and communication. In particular, we thank the Center for Service Innovation, the Centre for Ethics and Economics and NHH Executive at NHH. We moreover thank the research boards at both institutions for providing financial support that allowed us to publish the book as open access.

We are grateful to friends, colleagues, executive and master students and collaborators at academic institutions, companies and other organizations at home and abroad who have given us ideas, input, feedback and energy. In particular, we are grateful to the managers of companies with whom we conduct research, many of whom are covered in this book, for their willingness and enthusiasm to share knowledge and insights from their companies’ operations. We appreciate the efforts of students of all ages who have read, participated in the testing of the material and provided feedback. A big thank you to our eminent designer Ingrid Bygjordet Vaterland, who designed logos, figures and illustrations inside the book. Finally, we are grateful to the Norwegian Non-Fiction Writers and Translators Organization for a project grant in the early stage of writing this book.

Above all, we are grateful to family and friends for the many ways they contribute to everything we do. A special thank you to Ingrid and Kjersti.

Contents

Part I What is the Problem? 1 1 Why Sustainable Business Model Innovation? 3 1.1 A RESTART of Business Models for a Brighter Future Earth 5 1.2 The Methodological Approach of This Book 7 1.3 Let Us RESTART Sustainable Business Model Innovation 10 References 10 2 The Seven Steps of the RESTART Framework 13 2.1 A RESTART for Business Models of the Future 14 2.2 A Brief Introduction to the RESTART Framework for Sustainable Business Model Innovation 18 References 19 3 RESTART: What, Why, How and So What? 23 3.1 Responsibility and Opportunity 23 3.2 Sustainable and Profitable 29 xvii xviii Contents

3.3. The Next Step: Aligning Financial, Social and Environmental Bottom Lines 34 References 43

Part II The RESTART Framework 47 4 Roadmap to a RESTART 49 References 52

5 Redesign Rather than Standstill 55 5.1 The Business Model as the Story of How the Company

Works 56

5.2 Redesigning Business Models 66

6 Experimentation Rather than Turnaround 75 6.1 The Science of Profitability 76 6.2 Asking the Right Questions 82 References 87

7 Service-Logic Rather than Product-Logic 89 7.1 At Your Service 90 7.2 Access to Everything 95 References 100

8 The Circular Rather than the Linear Economy 103 8.1 The Future Goes in Circles 104 8.2 Resources Astray 110 References 119

9 Alliances Rather than Solo-runs 121 9.1 Unite and Collaborate! 122 9.2 Creating and Sharing Value 126 References 132

Contents

Results Rather than Indulgences 10.1 With an Eye on the Ball 10.2 Prioritize What Matters References

Three-Dimensionality Rather than One-Dimensionality 11.1 Take the Lead

11.2 Building a Better World

RESTART Before It is Too Late 12.1 It is Not Going to Be Easy 12.2 Ready, Set, RESTART!

Reference

Part III Implications and Future Research 13 A Recap of the RESTART Framework

14 A Process Model for Sustainable Business Model

Innovation

14.1 A Closer Look at the Four Phases of the Sustainable Business Model Innovation Process

14.2 Why the Business Model RESTARTer?

14.3 Starting the RESTART

15.1 Mind the Gap!

15.2 Research Designs and Methodologies 15.3 A RESTART Research Agenda

15.4 An Ocean of Opportunities References xix

135 136 141 149

132 154 159 166

169 172 173 175

187 190 190 192

193 194 196 198 203 204

XX Contents

16 Case Study: A RESTART for Scanship 16.1 Business Opportunities on the Floating City 16.2 Solutions for Cleaner Oceans 16.3 Toward Uncharted Waters 16.4 Restarting Scanship: Practical Challenges and Research Opportunities References

17 Case Study: A Circular Business Model for Orkla and BIR? 17.1 Orkla and Its Ecosystem 17.2 BIR: From Waste Manager to Circular Business

Partner?

17.3 Recognize—Rethink—Reinvent—Reorganize 17.4 Restarting Together: More Cake for All?

Reference