Our interest in sustainability originates from a business context. In each organization, the conditions that lead to sustainability are to be redefined, the performance indicators to be created and then to be measured. As described by Maguire and Hardy (2009), Rachel Carson’s criticism of corporate practices in Silent Spring (1962) have pushed organizations to evolve towards sustainability. By sustainability, we can refer to the Bruntland definition (1987) of meeting the needs of the present without compromising the ability of future generations to meet their own needs. Then a distinction was made by Daly et al. (1995) calling upon “strong sustainability” to insure the well-being of future of generations. This is opposed to “weak sustainability” where one reduces negative impacts but does not work towards eliminating them completely.

In a different approach to sustainability, one of the first means to influence the business decisions has been with Elkinton’s idea of the triple bottom line (1991). This means adding to financial accounts other performance indicators that keep track of social and environmental benefits and impacts. This triple bottom line is by no means a perfect solution to the complex problem of sustainability. Many have criticized it for simplifying (Norman & McDonald 2003, Vanclay 2004, Mitchell et al. 2007). Nonetheless, the triple bottom line approach has inspired the Global Report initiative (GRI) where organizations periodically document their practices according to a standardized list of indicators. Again, with time, we begin to see the limits of sustainability reporting. We join Sherman (2012), Ruffing 2007 and Gray & Milner (2004) in pointing to the deficiency of such reports. They question if they have become a marketing operation to qualm the worries of investors.

Today, more approaches to sustainability arise. Ehrenfeld (2009) defines sustainability as the flourishing of all life for all time. Sustainability is also insuring the right relationships (Brown & Garver 2009). The Natural Step speaks of fundamental principles to enable sustainability (Nattrass & Altomare 1999). No matter how an organization approaches the sustainable paradigm, we argue for a deeper analysis of its purpose and the means for it to contribute positively towards the future of society, the planet and itself.

In another approach to guide organizations in integrating sustainability, Hart (1997) proposed four different strategies in offering sustainable value: Clean technology, pollution prevention, product stewardship and base of the pyramid. The two variables of his 2×2 matrix are timing (present vs future) and relationships (internal vs external). If the “base of the pyramid” strategies occupy the space where organizations are building tomorrow’s opportunities and engaging with external constituencies, we question what are organizations in the developed world to do? Lee (2009) adapts Hart’s model by renaming that space as Sustainability vision. He sees organizations like SMEs creating a shared roadmap for meeting unmet needs.

Nidumolu, Pralahad and Rangaswami (2009) also provide alternatives to the base of the pyramid strategy. They documented the five stages in facing the challenge, changes and opportunities that arise from sustainability. Moreover, the authors argue that sustainability has now become the key driver of innovation:

Executives behave as though they have to choose between the largely social benefits of developing sustainable products or processes and the financial costs of doing so. But that’s simply not true. We’ve been studying the sustainability initiatives of 30 large corporations for some time. Our research shows that sustainability is a mother lode of organizational and technological innovations that yield both bottom-line and top-line results.” (p.3)

The five stages towards sustainability

Stage 5

Stage 4

Creating next practice platforms

Stage 3

Developing new business models

Stage 2

Designing sustainable

products and services

Stage 1

Making value
chains sustainable

Viewing compliance as an opportunity

Figure 2. Nidumolu, Pralahad and Rangaswami (2009)

We view this model favourably and wish to position our present research as a means to move from level three, product and service innovation, to level four, business models. When looking to improve the stage of sustainability’s integration in an organization, there will require a point where sustainability will be a part of the business model. The authors describe the central challenge of this 4th stage as “to find new ways of delivering and capturing value, which will change the basis of competition.” (p.9) More precisely, it is suggested that business model innovation comes from understanding and meeting consumer demands, enhancing the value offering with partners, develop new delivery technologies, create monetization models towards selling services and combining digital and physical infrastructures.

Although these practices make for sound business model innovation. It is not mentioned what makes a business model more or less sustainable. Akin to the sustainability deficiency of the original Osterwalder and Pigneur business model description, this seems to be another case of strictly financial approach to business models. In other words, although the authors are prescriptive of a few ideas of how to develop new business models they don’t precise a description of what makes a business model more sustainable. Nonetheless, we see a business model approach to sustainability as particularly robust, because it relates the financial mechanisms of the organization with the means towards improving the sustainability performance.

While existent research is often rooted in ecological sustainability, other scholars see business models as tools for addressing social needs. For example, Seelos and Mair (2007) were the first to explore social business models when they examined entrepreneurial approaches to improving health care services and mobile communication infrastructure in poor regions. However, if we had to create a starting point when retracing the genesis of the concept of a sustainable business models, we look to Stubb and Cocklin’s (2008) seminal article. They initiated a description of the characteristics of what makes business model sustainable. They cite the works of Wicks (1996, p.104) to describe the effect of sustainability on a firm’s business model as playing “an integral role in shaping the mission or driving force of the firm and its decision making”. They do research the idea of a sustainable business model but they remain very broad in a potential application in practice. They refer to a combination of features, conditions, processes and/or narratives. Nevertheless, Stubbs and Cocklin did address the problems with the “neoclassical economic worldview” of organizations by establishing a few principles of a sustainable business model. The authors conclude by defining a sustainable business model (SBM):

  1. A SBM draws on economic, environmental and social aspects of sustainability in defining an organization’s purpose

  2. A SBM uses a Triple Bottom Line approach in measuring performance

  3. A SBM considers the needs of all stakeholders rather than giving priority to shareholders’ expectations.

  4. A SBM treats nature as a stakeholder and promotes environmental stewardship

  5. Sustainability leaders, or champions, drive the cultural and structural changes necessary to implement sustainability

  6. An SBM encompasses the systems perspective as well as the firm-level perspective

Another approach was that of Ludeke-Freund (2009) who took the broad areas of a business models and instilled a notion of sustainability. This results in a definition closer to Osterwalder and Pigneur’s business model canvas : A business model for sustainability is the activity system of a firm which allocates resources and coordinates activities in a value creation process which overcomes the public/private benefit discrepancy. That is, a business model for sustainability is the structural template of a business logic which creates the business case for sustainability.(p.43)

Other researchers followed their work referring to as “sustainability business models” or even “business models for sustainability”. Hansen et al. (2009) describe sustainable business models as a different approach to innovation, traditionally based on improving the efficiency of technology. They studied product-service systems such as a car-sharing business where the business model influences consumption patterns. The link between business models and business cases to advance sustainability management has been explored Schaltegger et al. (2012). They find that incremental improvements of processes can be implemented within the existing business model, but more radical transformations may require changes of its components or the entire business model.

Starting from the sustainable innovation field, Boons & Lüdeke-Freund (2012) and Verhulst & Boks (2012) move towards the field of business models. The first team of authors reviewed the literature in both fields and found three dimensions to sustainable business model: through technological innovation, organizational innovation and social innovation. The second team of authors undertook a longitudinal and empirical study of the evolution of practice from sustainable product design to sustainable business models. This research confirmed transition from stage 3 to stage 4 as described by Nidumolu et al. (2007). They find that more sustainable outcomes arise from the implementation of strategies from the development of new business models. However, no team offers a concise description nor a practical method to asses a business model as being sustainable.

Balancing an applied and theoretical approach, Sommer (2012) studied the management of green business model transformations. He emphasizes the organizational change process that comes with green business model innovation. The term “green” limits the research to only to the environmental aspect of sustainability and it allows for weak sustainability. This study emphasized the managerial aspect of a business model transitions of incumbent firms. Our research endeavour is distinct from managing change as we attempt to design the change before even undertaking the transformation.

Still in the quest to conceptualize a sustainable business model, Boons and Lüdeke-Freund (2013), embarked on an in-depth literature review. They end up proposing 4 basic requirements for each of the constituting elements of business models: (1) the value proposition must provide both ecological/social and economic value through offering products and services, (2) the infrastructure must be rooted in principles of sustainable supply chain management, (3) the customer interface must enable close relationships with customers and other stakeholders to be able to take responsibility for and manage broader production and consumption systems (instead of simply selling stuff) and (4) the financial model should distribute economic costs and benefits among actors involved. In our view, this approach has divided the need for sustainability into different aspects of a business model without a broader view of the system. Stubbs and Cocklin’s original definition remains a better normative effort for this research.

A yet to be published dissertation by Upward (2013) addresses the need for defining the concept of strongly sustainable business models and the need for tools to initiate practical action. His ontological goals combined with a canvas tool are augmented by a systems approach. He critiques the profit centred aspect of a business model and constructs his canvas tool to help distinguish between strong and weak sustainability. Now that Upward has theorized upon a normative definition and adapted a canvas tool, we believe there is more to be explored by focusing on the design process that supports organizations in creating sustainable business models.

Therefore the understanding of what constitutes a sustainable business model is still rather conceptual and removed from the field. Adding the notion of sustainability to existing business models still requires research to establish it into practice. This practice gap happens to match up with the gap in business model literature in terms of the process. There has not been an emphasis on a design approach in the field of sustainable business model innovation. The following section describes how we will approach sustainable business model with design.

One thought on “Literature review on sustainable business models

  1. It is an excellent and concise literature review. Do you know about seminal works about going to stage 4 from stage 3 throug project management practices?

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