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New Business for Old Europe : the Business Contribution to SCP
(book edited by A. Tukker and U. Tischner, Greenleaf Publishing)
Arnold Tukker
Program Manager Sustainable Innovation TNO
Project Manager SusProNet and SCORE!
GIN 2006, 2-5 July,Cardiff, Wales
Structure of the presentation
• Relevance of decoupling and how to do it• The business contribution to SCP• Limits
Need for (radical) decoupling
• Impact = Population x Affluence x TPopulation: 6-9 billion (factor 1.5)Affluence: will rise considerably (e.g. factor 4-5)T must become a factor 4-10 more efficient
•Sources of eco-efficiency:Production side
– Improving emission factors / end of pipe– Improved technology / radical technical change
Consumption side– More intensive use of products and materials (sharing, pooling)– Shifting expenditure to immaterial value – Improving the ‘happiness per Euro/$ spent’
•With food, mobility and housing being prioirties (>70% of impacts; EIPRO)
Sources of decoupling, consumption side (ctc.• ‘Immaterial consumption’
Figure gives impact/Euro for total EU expenditure in 280 categories
Difference high/low is factor 4-6 Top categories are food
products
• ‘Quality of life / Euro’ UK: GDP rose factor 2 in 30
years Life satisfaction not Similar figures for Japan and
other countries
Source: New Economics Foundation: A well-being manifesto (2004)
Source: EIPRO, EU DG JRC-IPTS, Summer 2005
Conclusions• The potental for Factor x decoupling is there• Addressing the consumption part is relevant • ……but must be done smartly
No ‘limits to growth’ or ‘restricting consumption’, but Organising patterns of consumption so that maximum quality of life
is realised while using the same resources …which is a question of macro-economic efficiency
Intervention mechanism Potential reductions of impact per unit Quality of Life
Reducing emission factors (end of pipe, cleaner production & products)
- Small mass flows: several factors - Large mass flows: Limited
Improving production (cleaner production & products OR system innovation)
- Usually limited to intermediate, - Factor X in case of system innovation
Enhancing use intensity - Factor 2 or more, depending on the sharing, pooling or function combination system
Enhancing immaterial consumption - Factor 2 (if limited to changes within existing product and service categories)
Enhancing the ratio Quality of life and consumer expenditure
- Several factors?
So what is the role of business?
• Traditionally: process and product improvement End of pipe Cleaner production Cleaner products (‘ecodesign’)
• Advanced: changing business models ‘product service systems’ ‘preparing for system innovations’ And thereby also influencing patterns of consumption
Business modelling
• Definition of a business model: “a description of how a company or a set of companies intend to create and capture value with a product or a service. A business model defines the architecture of the product or service, the roles and relations of the company, its customers, partners and suppliers, and the physical, virtual and financial flows between them” (Ballon and Arbanowski)
Technological Architecture
Value Network
Revenue Model
Value Proposition
Generates revenues
Devides cost and revenues
Generates cost
Uses
Enables Delivers
Considerations for changing business models
•Changing business models is not a panacea•Companies have to consider the following factors:
Co-creating user value versus market risk– Tangible value– Intangible value
Minimizing system costs versus financial risk– Use of resources– Transaction costs– Capital costs, risk profile, and ambiguity of the offering
Other benefist versus investment and capability risk– Power in the value chain / potential to capture value– Speed of innovation, learning, and option value– Investment in new core capabilities, cannibalisation and loss of
synergies
And these factors do not always play out positive•Consider the example of Product-Services
Product oriented serivices: product + service addedUse oriented services: leasing, sharing, poolingResult oriented services: the a result is bought
•Use oriented service In principle more cost effectiveBut much lower intangible and tangible value
(compare car sharing with a car)
•Result oriented serviceCan be much more effective and opens the door for
fully new function fulfillmentBut often needs totally new capabilities, has worse
cash flow properties, lies all risks with provider, and the offering may be difficult to specify
The contradiction…
PSS type Advantages Disadvantages
1: Product oriented services
Easy to implementClose to core business
In general only incremental environmental benefits achievable
2: Use oriented services (particularly renting, sharing and pooling)
Medium environmental benefits (Factor 2)
More conscious use since per use full costs are charged
Low tangible added value: getting access takes time and effort
Low intangible added value: product ownership is often valued higher by consumers (less relevant for B2B)
3: Result oriented services (particularly functional results)
Imply often radical new ways of function fulfilment (Factor x potential)
Risks/ liabilities for reaching the result are taken over by the provider
Results cannot always be agreed upon or measured in operational terms
Customer loses power over means
Systems perspective on SCP
Sustainable consumption behaviour is a function of e.g.:a) Needs, Opportunities and Abilities (Vlek et al.), orb) Attitude, Social pressure and Behavioural control (Montalvo Corral)- User awareness hence needs to be understood in the user’s context !
Final user needs
Leisure
Food
(…….)
Mobility
Housing
Production system(B2B)
Consumer Market
Government Market(offer of public services and creation of
infrastructure)
(B2C)
(B2G)
Production Consumption
Domains Needs
Interaction betweendemand and supply
Shaped by:•Attitude/Life style•Pressure/Life context•Behavioural control /Influence on life
Adapted from: project Life Cycle Approaches to Sustainable Consumption, AIST, Japan WITH THANKS !
Example of change to SCP (Mobility)
Production Consumption
Radical
Incremental
I II
III IV
Car energy label: 10-20%
Car sharing system: factor 2
Low transport-need environment (Floridsdorf, Vienna): Factor 4-10
Example of governance of change (Mobility)
What Sustainability gains
1. Car energy label (incremental)
Marginal (<50%)
2. Car sharing system (redesign)
Factor 2 (50%)
3. Low-transport environment (system innovation)
Substantial (>>50%)
Governance Approaches
Awareness raising
Awareness raising + offers of (more) sustainable solutions
Awareness raising + offers of (inherent) sustainable solutions+
adapting context and framework conditions
A system is thethe combination of: Production
structure
Consumptionstructure
Interaction betweendemand and supply
Context and framework conditions
..If you want system change, involve expertise covering the system
A system is thethe combination of: Production
structure
Consumptionstructure
Interaction betweendemand and supply
Context and framework conditions
KC1: Businessdevelopers
KC3:Consumerscientists
KC2: (Strategic)designers
KC4: Policy innovation scientists
Specialists: Knowledge fieldDomain
KC5: Mobility
KC6: Agriculture/Food
KC7: Energy/industry, e.g. consumer electronics
Conclusions
•SC, and not just CP is essential for reaching Factor 4-10 goals
•Realising SC needs a system approachAn interplay between producers and consumers….And not by business alone…within a context framed by
– Rules of the game in markets– Existing infrastructures, social norms, habits, and other historical
ideosyncraciesWhich implies that directions of change cannot be
chosen freely
•Policies for SCP imply hence involvement of Actors along the production consumption chainActors that can influence institutions In sum, a system innovation approach
Postscript I: Sustainable Consumption Research Exchanges (SCORE !)•Some basics
Co-ordination action under EU FP68 core institutes, 20 members; supportive to a few 100
practitioners2005-2007; 1 Million Euro, start in October 2005
•Philosophy: For implementing SCP you need knowledge from
–Business–Design–Consumer behaviour–Innovation at system level
Focus at the 3 priorities mobility, food, housingDevelop ideas and a testing/learning plan for them
SCORE (continued)•SCORE froms an EU-based platform for SCP
Funded base to support a broad network (100-200 persons)Exchange moments every 5 monthsStructural framework to work out SCP concepts in the main
consumption domains with all relevant disciplinesSusProNet and SCORE work on ‘landing’ their communities
into a professional society (e.g. GIN, ERSCP….or IS4IE??)
Focus per Event
Workshop 1 General platform for exchange of views how to realise sustainable consumption structures between the 33 Participants and Partners, from their own knowledge background.
Conference 1 Goals:•Launch the network in the EU arena•Provide a broad platform for conceptual exchange•Provide a broad platform for SC case presentation s
Workshop 2 WS2-4 are organised giving consumption domains centre stage. WS2 starts with discussing 5-10 SCP cases per domain from the 4 knowledge perspectives, analysing success- and failure factures, re-design potential, and danger of rebound effects
Workshop 3 WS3 abstracts the lessons of WS2 to a higher level, leading to concepts models and case typologies of successful implementation approaches for sustainable consumption in relation to user awareness
Conference 2 Conference 2 validates the results of the project and forms a first outreach to policy, industry, certification organisations and other bodies relevant for implementation
Dissemination event
The dissemination event is meant to disseminate the full lessons of the project to all relevant extermal parties.
3. Platform for input into policy
Key results to be generatedMain header
1. Generating and disseminating best practice
2. Programming research
Result
• Describing best practice how to organize user awareness to reach sustainable consumption (3 sectors, 3 levels of change, interplay between 4 knowledge fields)*
• Dissemination across EU-25 via workshops, conferences, reports
• Exchange and (informal) co-ordination of research among participants, with a focus on EU-25 but with links world-wide (over 150 fte research capacity)
• Developing input in the form of a structured overview of research needs in FP6/FP7 and UNEP’s SCP program
•Input of 1) and 2) into the following potentially relevant policy platforms:• EU’s IPP and Resource policy: insight in the role of ‘soft’ informative instruments such as labelling, product declarations, etc.
• EU’s ETAP: insight in ‘willingness to consumer behaviour change’ in 3 relevant sectors
• EU and UNEP SCP policy platforms
4. Permanent network building
• Building a structural ‘Sustainable solution’ community covering SCP in collaboration with existing structures in Advisory Board (GIN, Prepare)
Levels of change in consumption:1. Via awareness2. Via awareness+new solutions3. Via awareness+new solutions+
framework changes
*Example sectors:1. Transport2. Agro-food3. Energy&electronics
Knowledge fields:1. Business development2. Strategic solution design3. Consumer behaviour4. Policy instruments for
innovation & information
Realising SCP: How to differentiate
•Different countries have different challenges•Typology of Hart, Millstein and Prahalad may be useful
Consumer economies (1 bio people)Emerging economies (1 bio people)Bottom of the pyramid economies (4 bio people living on
1-2$ a day)
The challenge of system innovation differs remarkably per world region
Adapted from: Hart&Milstein, Sloan Management Review, Fall 1999, and C.K. Prahalad,The Fortune at the Bottom of the Pyramid, 2005
Type of Economy Example countries Main sustainability challenge
1. Consumer US, Japan, Western Europe
Radical decouplingDramatically lowering resource use while maintaining economic output (‘Factor 10’)
2. Emerging China, S-E Asia, South America
Leapfrogging to sustainable structures of consumption and production without copying Western examples first
3. Bottom of the pyramid
Many countries in Africa
Ensuring basic needsDeveloping dedicated solutions for the ‘Bottom of the pyramid’; providing a basis for sustainable growth
Synthesis: towards a Framework for the Framework of Programs on SCP
Parameter 1: priority areas Parameter 2: Economy types and main agenda’s
Leads to:
1. Food2. Mobility3. Energy use
1. Consumer: radical decoupling2. Emerging: leapfrogging3. BOP: ensuring basic needs
9 main agenda’s
Organisation per main agenda
Who to involve Elements to be addressed per main agenda
Domain specialists (food, mobility or energy use)
Experts and practitioners on: - Business management- Design- Consumer / user behavior- System innovation and policy
1. Development of conceptual understanding of how to realise change
2. Gathering and analysing existing examples of change
3. Experimenting with change4. Translating experiences developed in
outlines for ‘managing’ change
Postscript : the Oslo Declaration• Initiated during the last workshop of the project ‘Life cycle
approaches to Sustainable Consumption’ Project led by Dr. Inaba of AIST, SNTT Funded by Japanese government February 2005, Oslo
• Wide-felt problem of researchers: Research agenda’s are technical Ignore the social and institutional components so essential for SCP
• Decision to initiate the ‘Oslo Declaration on Sustainable Consumption’
Reference to WSSD and 10 Year Program on SCP Reference to an implementation gap: little progress in WSSD +3 Call for action world wide Outline for a research agenda on SCP Published on www.oslodeclaration.org
• Present situation: Now signed by 250 researchers (and counting) Offered to various governments; lately on 25 August to all relevan members of
the European Commission for consideration in the development of the EU’s 7th Framework Program on Research
