D2 - Sustain · PDF file7.1.1 SBM process, Value mapping tool and Sustainable business ... Revised version ... tool and life cycle cost estimation tool developed in Work Package 3

D2.4

Version: 1.1

Date: 05/09/2013

Author: University of

Cambridge

Dissemination status PU

Document reference D2.4

First stage prototype tools and methods, capable of being fully used by industrial partners.

Project acronym: SustainValue

Project name: Sustainable value creation in manufacturing networks

Call and Contract: FP7-NMP-2010-SMALL-4

Grant Agreement no.: 262931

Project duration: 01.04.2011 – 31.03.2014 (36 months)

Co-ordinator VTT VTT Technical Research Centre of Finland (FI)

Partners: POLIMI Politecnico di Milano (IT)

UiS Center for Industrial Asset Management, University of

Stavanger (NO)

FIR Research Institute for Operations Management at

RWTH Aachen University (DE)

DIN DIN, The German Institute for Standardization (DE)

FIDIA FIDIA (IT)

Riversimple Riversimple LLP (UK)

CLAAS

ELCON

CLAAS Selbstfahrende Erntemaschinen GmbH (DE)

Elcon Solutions Oy (FI)

UC University of Cambridge (UK)

This project is supported by funding from the Nanosciences, Nanotechnologies,

Materials and new Production Technologies Programme under the 7th

Research Framework Programme of the European Union.

FP7-262931 SustainValue D2.4

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Project no. 262931

SustainValue

Sustainable value creation in manufacturing networks

First stage prototype tools and methods, capable of being fully used by industrial partners.

Due date of deliverable: 2013-01-31

Actual submission date: 2013-01-31

Start date of project: 2011-04-01 Duration: 36 months

Organisation name of the lead partner for this deliverable: University of Cambridge

Revision 1.1

Project co-funded by the European Commission within the Seventh Framework Programme

Dissemination Level

PU Public X

PP Restricted to other programme participants (including the Commission Services)

RE Restricted to a group specified by the consortium (including the Commission

Services)

CO Confidential, only for members of the consortium (including the Commission

Services)


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Contents

List of tables and figures ......................................................................................................................... 4

Executive summary ................................................................................................................................. 6

Terminology ............................................................................................................................................ 7

1 Introduction .................................................................................................................................... 9

1.1 Background ............................................................................................................................. 9

1.2 Research Process/Method .................................................................................................... 10

2 Results from D2.3 .......................................................................................................................... 11

2.1 Overview ............................................................................................................................... 11

2.2 Gaps and observations - rationale for D2.4 .......................................................................... 13

3 Sustainable business modelling (SBM) process ............................................................................ 13

3.1 The proposed five step process ............................................................................................ 13

3.2 How is the SBM process different from existing ones? ........................................................ 14

4 Tool selection criteria.................................................................................................................... 17

5 Tools for each step ........................................................................................................................ 20

6 Prototype process and toolset ...................................................................................................... 36

7 Using the SBM process and toolset .............................................................................................. 37

7.1 Experiments with industrial partners ................................................................................... 38

7.1.1 SBM process, Value mapping tool and Sustainable business model element

archetypes ..................................................................................................................................... 39

7.1.2 LCC tool ......................................................................................................................... 46

8 Use and test phase ........................................................................................................................ 51

9 Summary ....................................................................................................................................... 52

References ............................................................................................................................................ 54

Appendix 1: Contributors to D2.4 ......................................................................................................... 58

Appendix 2: Template for tool criteria evaluation (D2.3) ..................................................................... 58

Appendix 3: Map of WP2 and WP3 outputs aligned with Riversimple, CLAAS and Elcon use cases .... 59

Appendix 4: Introduction for Riversimple - presentation ..................................................................... 61

Appendix 5: Introduction for CLAAS - presentation ............................................................................. 62


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List of tables and figures

Table 2-1: Sustainable business modelling process from D2.3 ............................................................. 11

Table 2-2: Toolset identified in D2.3 ..................................................................................................... 12

Table 3-1: Proposed SBM process and expected outputs .................................................................... 14

Table 3-2: Comparison of the SBM process with dominant processes in academia and industry ....... 16

Table 4-1: First stage prototype toolset................................................................................................ 20

Table 5-1: System SWOT analysis ......................................................................................................... 21

Table 5-2: Sustainable business model element archetypes typology ................................................. 30

Table 6-1: First stage prototype SBM process and toolset ................................................................... 36

Table 7-1: Preliminary research outputs/ideas - Riversimple ............................................................... 41

Table 7-2: Preliminary research outputs/ideas - CLAAS ....................................................................... 45

Table 8-1: Use and test phase aims for tools ........................................................................................ 52

Figure 5-1: The corporate sustainability continuum............................................................................. 22

Figure 5-2: Opportunities for value innovation .................................................................................... 23

Figure 5-3: Value mapping tool ............................................................................................................. 24

Figure 5-4: Scenario management tool................................................................................................. 27

Figure 5-5: Sustainability impact calculation tool ................................................................................. 32

Figure 7-1: Riversimple – populated tool .............................................................................................. 40

Figure 7-2: CLAAS – populated tool ...................................................................................................... 43

Figure 7-3: Home page of the LCC estimation tool ............................................................................... 47

Figure 7-4: Example of the data input form .......................................................................................... 47

Figure 7-5: Result figures. ..................................................................................................................... 48

Figure 7-6: Form for definition of statistical distributions used in Monte Carlo Simulation. ............... 49

Figure 7-7: Example of the results of sensitivity analysis. .................................................................... 50


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Document summary information

Authors and contributors

Initial Name Organisation Role

SE Prof Steve Evans UC Author

PR Dr Padmakshi Rana UC Author

SS Samuel Short UC Author

CG Christian Grefrath FIR Contributor

DW Dirk Wagner FIR Contributor

SK Susanna Kunttu VTT Contributor

Revision history

Quality control

Role Who Date

Deliverable leader Prof Steve Evans 2013-03-31

Project manager Dr Padmakshi Rana 2013-03-31

Project coordinator Teuvo Uusitalo 2013-09-16

Disclaimer

The content of the publication herein is the sole responsibility of the publishers and it does not

necessarily represent the views expressed by the European Commission or its services.

Revision Date Who Comment

0.1 2012-11-30 Dr Padmakshi Rana

Samuel Short

Outline of deliverable

0.2

0.3

2013-01-14

2013-01-20

Pr of Steve Evans

Dr Padmakshi Rana

Samuel Short

1st Draft

2nd Draft

1.0 2013-01-31 Prof Steve Evans

Dr Padmakshi Rana

Samuel Short

Final version


Dr Padmakshi Rana

Revised version

Role

Who Date



Project coordinator Teuvo Uusitalo 2012-04-

01

Role

Who Date




01


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Executive summary

Deliverable 2.4 (D2.4) is part of Work Package (WP) 2 of the SustainValue project. WP2, which

comprises of four tasks, focuses on identifying and developing a set of tools and methods for

designing a sustainable business model and value network for manufacturers. This is the second

deliverable of the second task T2.2 –propose new techniques and then design and development of

new methods and tools. It proposes the 5 steps sustainable business modelling process and tools and

methods accompanying the process to develop sustainable business models.

D2.4 builds on the state-of-art and state-of-practice review carried out in deliverables 2.1/2.2 and

the results (proposed process and tools) and gaps observed from deliverable 2.3 (D2.3) particularly

on the sustainable business modelling process and the lack of tools for design to support the process

and innovation and transformation of the value proposition. The process and toolset were refined

through brainstorming sessions and workshops (experiments) with the SustainValue consortium and

external organisations. The result of which is the selected process and tools presented in this report.

The sustainable business modelling process consists of 5 steps, which are as follows:

Step 1 – Purpose of the business

Step 2 – Identify potential stakeholders and select sustainability factors

Step 3 – Explore and develop new opportunities for sustainable value proposition

Step 4 – Concept generation and selection

Step 5 – Define/develop the value creation and delivery system and the value capture

mechanism

The process is accompanied by a portfolio of tools and methods that will assist in the design of

sustainable business model/s. The process focuses on analysis and design of sustainable business

model/s and includes a broad range of stakeholders across the industrial network, which assists

mapping various forms of value and its exchanges to deliver sustainability. The tools have been

identified or specifically designed to focus on generating business model innovation for sustainability

from a system perspective. The toolset includes methods that assist in developing and transforming

the new sustainable value proposition. Specific tools that have been developed and included in this

deliverable are the value mapping tool and sustainable business model element archetypes typology

developed in Work Package 2 and the scenario management tool, sustainability impact calculation

tool and life cycle cost estimation tool developed in Work Package 3.

D2.4 (second phase of Task 2.2) is a prototyping stage that delivers the core functionality, while

experimenting/engaging with real users in the identification, design and development of the process

and tools. The purpose of D2.4 is to present the selected process and tools for sustainable business

modelling, based on the findings in D2.3. Hence, this deliverable provides the first stage prototype

process and toolset that is capable of being used by the industrial partners but ‘will not have final

user interfaces and will have some elements of simplification to make their construction and testing

easier’ (SustainValue proposal 2011). It is expected that the sustainable business modelling process

and toolset will assist manufacturing companies in the analysis and design of a novel and value-

adding sustainable business model.


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Terminology

Model supports the understanding of the dynamic interaction between the elements of a

(business/industrial) system (Shehabuddeen et. al 1999).

Process is an approach to achieving a managerial objective, through the transformation of inputs

into outputs (Shehabuddeen et al. 1999).

Method is a series of steps describing how to accomplish or approach some objectives (D2.3 2011).

Business model: It is a conceptual tool containing a set of objects, concepts and their relationships with the

objective to express the business logic of a specific company or a company network. Therefore it has to be considered which concepts and relationships allow a simplified description and representation of what value is provided to customers, how this is done and with which financial consequences (Osterwalder et al. 2005).

Business model is the way in which a business chooses to create, deliver, capture and exchange

value (working definition for SustainValue project). Business Modelling is the process of systematically analysing or developing the elements of a business model (working definition for SustainValue project). It assists in analysing or developing a sustainable business model (for example Osterwalder and Pigneur canvas). Business model innovation involves changing ‘the way you do business’, rather than ‘what you do’ and hence must go beyond process and products (Amit & Zott 2012). Stakeholder: Stakeholder is an individual or group that has an interest in any decision or activity of an

organization (ISO, 2010 and D1.3 2012) The key stakeholders discussed in relation to sustainability, primarily, include workforce,

environment, suppliers, community (consumers/citizens), governments, international organisations, non-government organisations (international and local) and the media.

Stakeholder engagement is an activity undertaken to create opportunities for dialogue between an organization and one or more of its stakeholders, with the aim of providing an informed basis for the organization's decisions (ISO 26000 2010). Value is the set of benefits derived by a stakeholder from an exchange (working definition for SustainValue project). Value network generates economic [environmental and social] value through complex dynamic exchanges between one or more enterprises, customers, suppliers, strategic partners and the community. These networks engage in more than just transactions around goods, services, and revenue (Allee 2000). Sustainability is a state that requires that humans carry out their activities in a way that protects the functions of the earth's ecosystem as a whole.


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Sustainability has an economic, an environmental and a social dimension (ISO 15392,

2008).Corporate responsibility and triple bottom line (Elkington 1997) address these as three pillars of sustainability.

Sustainable business model

A business model that creates competitive advantage through superior customer value and contributes to a sustainable development of the company and society’ (Lüdeke-freund 2010).

It is the value logic that encompasses economic, environmental and social goals while

aligning the interests of all stakeholder groups (working definition for SustainValue project). Business model innovation for sustainability is defined as the process of re-defining the core purpose and how the firm delivers aligned economic, social and environmental sustainability (working definition for SustainValue). Innovations that change the value proposition (create positive benefits, or significantly reduce

negative impacts) for the environment and/or society, through changes in the way the firm and its value-network create and deliver value, and make money from delivering value (Bocken et al. 2012).

Sustainable value is perceived to be generated from embedding economic, social and environmental sustainability into firms (working definition for SustainValue). Sustainable economic value

Profit, ROI, growth, financial resilience and long-term viability Sustainable environmental value

Resource use no greater than rates of regeneration and renewal

Emissions and waste levels within the ability of the environment to metabolise safely

Protection of bio-diversity

Positive benefits for the environment to counter past excess Sustainable social value

Poverty alleviation

Community development

Social equality

Health and safety

Long-term meaningful employment Use Case is the unit of interest in a case study. Hence for each case study (i.e. each industrial

partner) a number of use cases (at least one) is selected in the project as unit of study (D5.1 2012).

Case Study ‘is an empirical inquiry that investigates a contemporary phenomenon within its

real-life context, especially the boundaries between phenomenon and context are not clearly

evident’ (Yin 2003).


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1 Introduction

Deliverable 2.4 (D2.4) – first stage prototype tools and methods, capable of being fully used by

industrial partners, is the second report for task 2.2. It builds on deliverable 2.3 (D2.3), which

proposes a single set of tools and methods for business models and value networks. ‘It provides

inputs for building the prototype tools & methods that, although not having the final user interfaces,

would make available the core functionality for industrial partners’ (D2.3 2012).

1.1 Background

The changes in the business environment, concerns over the impact of climate change, threat of

resource limitations, concerns over economic stability and growing public pressure for socially

responsible business will necessitate firms to rethink their business model and purpose. Although

various eco-innovations and corporate social responsibility initiatives are being developed and

implemented in companies, they are not enough to address the growing challenges and concerns of

sustainability facing industry and society. Moreover, as suggested by Schaltegger et al. (2012)

‘companies have without doubt a large influence on the economy and life in general’. Hence, a

transition towards a sustainable business model and economy will require a significant shift in the

way businesses are conceived and operated to generate sustainable value (environmental, social

and economic).

It has been observed through literature that business model innovation is a key to business success

(Chesbrough and Rosenbloom 2002, Chesbrough 2010, Lüdeke-Freund 2010, Zott and Amit 2010).

Likewise for embedding sustainability into businesses, authors such as Stubbs & Cocklin (2008),

Lüdeke-Freund (2010), Schaltegger et al. (2012) and Porter and Kramer (2011) consider business

model innovation and redesign to be essential in generating sustainable value. However, the existing

focus of business models and modelling activities has predominantly been on generating economic

value with a specific focus on customers and shareholders’ interests. Review of industrial practice

suggests that the innovation in business models for sustainability and their business modelling

activities is generally ad-hoc, incremental, and often depends upon radical visionary leadership (D2.1

2012). As Sommer (2012) further explains ‘the business model concept does not solely focus on the

organisation but also considers external parties that participate in or benefit from the company’s

value creation activities. These external parties are not limited to suppliers or customers but also

include various partners that need to be considered for any transformation effort’. This transition in

particular requires business model innovation to embed sustainability in the proposition, delivery

and creation and capture of value through a multi-stakeholder view.

The objective of a sustainable business is alignment of stakeholders’ interests to ensure broader

positive value creation, rather than compromises that benefit some stakeholder groups at the

expense of others. Schaltegger et al. (2011, 2012) highlight the focus on developing the business

case for sustainability, however, they assert that it ‘mostly seen as an ad-hoc measure, a supplement

to the core business, or simply a coincidence’. If sustainability is to be realised and taken to scale,

there is a need for developing a business case for sustainability through business model innovation.

This will enable firms to capture economic value while delivering social and environmental benefits.


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The previous SustainValue deliverables on the review of state-of-art and state-of-practice on

sustainable business models (D2.1 and D2.2 2011), which provide a detail review of the above

discourse, highlight the following key findings, which were considered in the development of D2.3

and D2.4:

Business model innovation is a key to the development of sustainable business model/s.

Currently, business model innovation is generally ad-hoc, incremental and experimental and

relies on visionary leadership.

Broader stakeholder perspective specifically including environment and society is required

(network-centric approach).

In general, there is relatively limited work on what constitutes a sustainable business model,

and the relevant concepts are relatively poorly connected in literature and practice.

The business model literature is conceptually driven (not much written about being used

in practice)

Business model examples such as industrial symbiosis and social business models are not

explicitly considered or brought together to support the delivery of sustainability.

Difficulty in embedding sustainability into the business models.

There is a lack of process and tools that can be used by manufacturing companies to

innovate and evaluate novel business models, whilst redefining and considering various

forms of value across the business network for a multi-stakeholder visibility.

For example, tools for exploring other forms of value and for analyzing exchanges.

Additionally, there are limited tools to look systematically for opportunities for broader

forms of value creation through the extended network – for example searching for

partner firms /organizations outside traditional value chain of the firm in order to

deliver sustainability.

To integrate sustainability into the core of the business a comprehensive consideration of the

broader range of stakeholders across the system is necessary to rethink the value proposition of the

firm for society. This requires design and development of process and tools that explicitly include a

multi-stakeholder view of value is seen as being integral towards business model innovation for

sustainability.

This deliverable proposes a 5 step sustainable business modelling process (SBM) and a portfolio of

first stage prototype tools that aim to deliver sustainable value. The process consists of five steps

and each step is accompanied by a selection of tools that will assist firms in understanding and

delivering sustainability. Firms can select and use the tools as per the requirement of their business

and its operations. The objective of this deliverable is to assist manufacturing companies in the

analysis and design of future oriented and novel forms of business that will deliver sustainability

through a clearly defined sustainable business modelling process, while adapting to the

requirements for sustainability.

1.2 Research Process/Method

The research process for task 2.2 was split in two phases, where phase 1 was the delivery of D2.3 -

proposed design of new methods & tools, within the overall architecture. The research process in

D2.3 involved meetings, brainstorming sessions and a workshop carried out in three stages, to


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identify, select and propose the process and toolset, within the SustainValue consortium and

external firms and researchers.

The research process for phase 2, which is the delivery of D2.4 included the review of D2.3 to

elucidate the gap in the process and toolset followed by the further development of two new tools

by WP2 and the inclusion of three tools from WP3 to address the gaps. This included further

brainstorming sessions and knowledge exchange meeting on tools within the SustainValue

consortium and WP2 team. Workshops for the initial testing of the tools developed in WP2 at UC

were carried out with the Consortium’s industrial partners (Riversimple and CLAAS) and external

firms. This led to the first stage prototype process and toolset presented in this report.

2 Results from D2.3

This chapter introduces the key results and gaps identified in D2.3 that set the foundation for the

work carried out in this deliverable. The findings drive the proposal of the sustainable business

modelling process and the first set of tools and methods accompanying the process.

2.1 Overview D2.3 proposed a 5 step sustainable business modelling (SBM) process with questions and expected

outputs, illustrated in the table below:

• Step 1 - purpose of business

• Step 2 - identify potential stakeholders and sustainability factors

• Step 3 - develop the value proposition

• Step 4 - develop the value creation and delivery system and the value capture mechanism)

• Step 5 - build governance structures for supporting the business model

Table 2-1: Sustainable business modelling process from D2.3


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The conclusion of D2.3 on the process and its steps addressed the rationale behind not including

step 5 for further exploration. The role of governance is crucial for achieving good business results.

Step 5 aims at building the appropriate governance structures that would act as support of the

business model defined in previous steps of the process. The step aims to manage measure and

monitor the business activities. However, as this is being considered and developed in WP1 –

Governance model and WP4 - Governing framework for sustainability, Step 5 is not included in the

following review and refinement of the process and the portfolio of tools and methods.

The final selection of tools/methods for the steps of the sustainable business modelling process in

D2.3 was achieved by the integration of the feedback received during a Consortium brainstorming

session in early May 2012 followed by another meeting between RTD partners in Milan at the end of

May 2012. ‘The steps and the nature of the tools/methods to be considered in each step were

carefully taken into consideration when defining the final proposal of tools/methods’ (D2.3 2012). A

set of tools and methods for each step of the SBM process was identified to assist firms in delivering

sustainability. The steps and toolset divided into analysis and design categories based on the step

output and the specific tool.

SBM process Tools identified - Analysis Tools identified – Design Supporting tools - Guidelines

Step 1 System SWOT - SUSPRONET, Scenario analysis, Sustainability continuum

Step 2 Stakeholder mapping GRI guidelines

Step 3 Value tree analysis Value innovation tool

Step 4 Osterwalder and Pigneur business model canvas, System map

Step 5 Not explored further, as mentioned above

Table 2-2: Toolset identified in D2.3

Selection and evaluation criteria for the tools:

The following evaluation criteria (further elaborated in section 4 of this deliverable) were established

following the review of literature and practice on business models for sustainability in D2.3:

Time required

Skills and knowledge required

Data required

Value perspective

Business ecosystem perspective

Innovation and creativity

Availability of the tool

Possible use of the tool


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The first six of the criteria measure capabilities of the tools/methods (1-6), whilst the last two

criteria (7 and 8) are more concerned with the use and scope of the tools/methods. The evaluation

criteria for each tool/method were done using a template (Appendix 2).

2.2 Gaps and observations - rationale for D2.4

The following gaps were identified in D2.3 in relation to the sustainable business modelling process

and toolset, which D2.4 has addressed and refined (section 4). The full explanation of the tools will

follow in section 5.

Process:

It was observed that the sustainable value proposition developed in step 3 of the SBM

process requires an additional step towards development and transformation of the new

value proposition, prior to developing the value creation, delivery and capture mechanism in

step 4.

Toolset:

Limited tools that assist in the innovation process of the value proposition and

transformation of value.

Lack of design tools (steps 2 and 3) to support the process.

Tools that can be used by companies of various size and scale - SMEs, start-ups, MNCs and

can potentially be used without support.

Tools from WP3 as further input to the WP2 toolset could be included that specifically

support the development of sustainable business models - ongoing enhancement of the

tools in collaboration with other RTDs and industrial partners.

The following sections will elaborate on the new developments in the process and portfolio of tools

and methods, while considering the review and observations mentioned in the above section.

3 Sustainable business modelling (SBM) process

The results and gaps presented in the previous section has been the premise for further developing

the SBM process and toolset. This section presents the explanation and the 5 steps along with its

ouput/s of the SBM process.

3.1 The proposed five step process

The proposed SBM process is iterative in that as changes occur in one step it not only impacts on the

following step but also on the preceding ones. Parts of the process and its expected output was

refined slightly from its existing version, with the inclusion of step 4 and refinement of the expected

output in steps 1 and 3, to reflect clarity in the sequence of the steps and more succinct output/s.

Based on the gap identified in D2.3, that there is a lack of a step that includes transformation and

development of the new sustainable value proposition, step 4 on concept generation and selection

was added. This step includes selecting and evaluating the business model options for developing

the new sustainable value proposition depending on the nature, structure, scale and requirement/s

of the firm. The SBM process emphasises on providing assistance in the analysis and design of

sustainable business models. It is beyond the scope of WP2 to address the phases of implementation

and management but is being considered in WPs 1 and 4 (section 2.1).


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Table 3-1: Proposed SBM process and expected outputs

3.2 How is the SBM process different from existing ones?

Key authors who have tried to describe a business modelling process include Teece (2010),

Osterwalder and Pigneur (2005, 2010) and authors such as Richardson (2008), Zott and Amit (2010),

Romero and Molina (2011) have contributed towards defining the elements of business model

design. Their focus has not been specifically on delivering sustainability, they provide an extensive

overview of the current state-of-art and state-of-practice. Tukker and Tischner (2006), Baines et al.

(2007), Stubbs and Cocklin (2008), Ludeke-Freund (2010), and Anderson and White (2011) have

contributed to academic and industrial research on sustainable business modelling. However, there

is still a lack of a clear design process for sustainable business modelling that will assist

manufacturing firms in embedding and delivering sustainability through a multi-stakeholder view.

Following are some key areas of focus and requirements for designing a sustainable business

modelling process, identified through the review of literature and practice:

Key areas:

Explicit consideration of value created/destroyed/missed for all stakeholders and

particularly for environment and society. The objective is delivering societal benefit without

degradation of the environment. This requires the transformation of business practices that

focus on delivering individual consumer benefit and/or maximising shareholder benefit at

the expense of the broader society and/or environment.

Network centric business model design - to ensure consideration of system-wide perspective

(for example broader set of stakeholders and their interactions), rather than a firm-centric

view.

Current approaches to business model redesign for sustainability are generally ad-hoc and

rarely seem to follow a prescribed process. As such they are often experimental which

potentially introduces risk and slows the rate of general adoption.

Proposed Steps Expected outputs

1 - Purpose of the business Reason for being in the business, approach and drivers for

sustainability, products and service bundles, industry-related

needs, norms and opportunities

2 - Identify potential stakeholders and

select sustainability factors

Potential stakeholder types and what they value, sustainability

priorities

3 - Explore and develop new

opportunities for sustainable value

proposition

Sustainable value proposition for a firm and its stakeholders – value

opportunities

4 - Concept generation and selection Transformation and development of the value proposition

5 - Define/develop the value creation

and delivery system and the value

capture mechanism

Key activities, key resources, key partners, key channels, key mind-

set and the value exchanges and value capture for the stakeholders


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A typology of business model element archetypes for delivering sustainability can be

identified through systematic review of the literature and practice that might be considered

in future business model development.

Requirements for business model design process that delivers sustainability:

Provide guidance on establishing the fundamental purpose of the firm/network.

Provide a comprehensive framework for investigation and understanding of the value

proposition of the firm/network for all stakeholder groups, such as suppliers and partners,

customers, employees and shareholders. Specifically, the approach needs to be able to

identify negative outcomes for society and the environment.

Provide guidance on how the business model might be amended/extended to enhance

sustainability (how to align the interests of the environment and society with the consumers

and investors interests).

Provide guidance and options on the specific design of the business model (what) in order to

deliver sustainable solutions, whilst supporting change management within the companies.

(The development framework for sustainable solutions, to be presented in deliverable 3.3,

provides the methodology ‘that assures a structured and systematic approach for a

complete and successful result – sustainable solution’. This is aligned with the work carried

in WP2 and this report).

The above focus areas and requirements have been considered in developing the sustainable

business modelling process. The table below provides a comparison of the proposed process (section

3.1) against three approaches, which are dominant in business model research.

Our proposed business modelling process

Tukker and Tischner 2006

Teece, 2010 Osterwalder and Pigneur

2010

Step 1: Purpose of the business

Analysis on product service systems (PSS) opportunities

Mobilize - Setting the stage Prepare for a successful business model design project - elements, create awareness and need, motivation, common language

Step 2: Identify potential stakeholders and select sustainability factors

Segment the market Understand – Immersion Research and analyze elements needed for the BM design effort.

Step 3: Explore and develop new opportunities for sustainable value proposition

PSS idea generation

Create a value proposition for each segment

Step 4: Concept generation and selection (of business model examples that assist in business model innovation for sustainability)

Design - Inquiry Generate and test viable business model options and select the best


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Step 5: Define and develop the value creation & delivery system and the value capture mechanism

PSS design Design and implement mechanism to capture value from each segment

Step 6: build governance structures for supporting the business model (considered but not explored further - section 2.1 and 3.1)

Figure out and implement ‘isolating mechanisms’ to hinder or block imitation by competitors and disintermediation by customers and suppliers

Implement (execution)

and Manage (adapt and

modify)

(Developed from Holgado Granados et al. 2012)

Table 3-2: Comparison of the SBM process with dominant processes in academia and industry

The three processes have contributed significantly towards the development of the SBM process as

each of them provides guidance on design elements and insights on the process. More specifically,

the Tukker and Tischner (2006) approach focuses on designing PSS solutions with a focus on

sustainability. It considers a combination of tools some of which are created specifically to fulfil

sustainability requirements such as modified System SWOT analysis, which has been included in the

prototype toolset of this work. Teece’s work on the steps and questions explored for business model

design is very helpful in providing the foundation and input into the design process of business

models and focuses on the need to integrate the wider business environment (Teece 2010). The

Osterwalder and Pigneur (2010) process provides a comprehensive design process that is grounded

in academic literature, includes a set of proven tools and methods such as the visually compelling

Osterwalder and Pigneur business model canvas and manual, SWOT and scenario planning, proven

with practitioners and uses practical examples. Their business model canvas is also incorporated into

the toolset.

However, the Tukker and Tischner process particularly focuses on PSS and is limited in providing a

more general approach to sustainable business modelling. PSS is only one aspect of sustainability

and it cannot be effective in isolation and hence needs to be combined more comprehensively with

other sustainability initiatives. Moreover, not only must the solution (PSS) for stakeholders be

sustainable but also the way it is sourced, produced, used and recycled. The different methods to

realise sustainability will be illustrated with the help of the prospective development framework to

be presented in deliverable 3.3 of WP3 (due in April 2013), a part of which builds on the PSS

approach and some of its tools. Teece and Osterwalder and Pigneur processes are primarily focused

on delivering economic value with a particular focus on two stakeholders - customers and

shareholders. Moreover, the focus of Teece’s business model design work is primarily on ‘how to

deliver what the customer wants in a cost-effective and timely fashion’ (Teece 2010). The author

further highlights limited research in the business model design area. The Osterwalder and Pigneur

process does not necessarily include a specific focus on sustainability. The emphasis is exclusively on

the value proposition for the customer with limited consideration of broader network perspectives

on business model design, examples provided in the guide are limited and do not illustrate

sustainability concepts. They suggest sustainability might be considered by undertaking the business

model innovation process three times – optimising for each sustainability dimension – and then

combining the outcomes.


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The processes proposed by these leading authors all have merit and provide sound basis for business

modelling. However, a revised process is needed which specifically assists business model design for

sustainability (at firms/network level) that takes a broader perspective than PSS and some specific

additional tools that explicitly address sustainability issues seems necessary, which incorporate the

requirements (above) for business model design process that delivers sustainability. Therefore, the

SBM process is proposed which attempts to address these features.

The SBM process introduces the sustainability dimensions, the language around shared-value

creation, and exploring the overarching sustainability objectives that the firm seeks to address. The

specific difference for sustainability is that the analysis of market needs is not just narrowly focused

customers and shareholders, but equally on the needs of society and the environment. The

proposed SBM process considers a wider set of stakeholders across the business network to deliver

sustainable value that will assist manufacturers in the analysis and design of sustainable business

models.

The following sections will present the toolset whilst presenting the rationale for tool selection and

the explanation of the individual tools.

4 Tool selection criteria

The work carried out in D2.3 constituted of identifying eight evaluation criteria for the selection of

the tools (appendix 2). The following evaluation criteria were established after the review of

literature and practice on business models for sustainability and it has been used for further

selection and development of the first stage prototype toolset (in D2.4):

Time required - This includes the period required for using the tool, which involves

willingness and availability of the user to spend time on it. It also involves the time required

for data collection and analysis. Hence has been classified into – a few hours, in between

and more than 1 week.

Skills and knowledge required –There are tools that require a higher level of external

facilitation and support in its use and application compared to others. It is considered

preferable to identify, adapt and design tools and methods that involve ease of use.

Therefore, three levels were identified in this criterion - standard skills, general knowledge

and no specific need for field expertise, in between and highly specialised skills,

multidisciplinary knowledge and field expertise. These consider the difficulty of

implementing the tool (i.e. mathematical or statistical competence) and the depth of

knowledge on specific contents.

Data required – This involves the quantity and difficulty in gathering data and is based on the

following classification, which considers the nature, ease and accessibility to the

information:

Integrated in information sources, limited effort and number of people required for

data collection (in the company and amongst immediate stakeholders)

In between

Dispersed in information sources, effort required in data collection with the need to

keep contact with different and distant stakeholders


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Value perspective – This criterion reflects the need for the tool to consider both tangible

(monetary, performance indicators) and intangible (stakeholder involvement and customer

satisfaction) value in order to capture benefits from economic, environmental and social

sustainability.

Business ecosystem perspective – The tools are able to include a broader range of

stakeholders across the industrial network.

Innovation and creativity – This includes tools that are capable of generating innovative

ideas and stimulates creativity.

Availability of the tool – This criterion comprises of tools that are either already available

and can be used as it is (on the shelf) or needs to be adapted for the SBM process.

Possible use of the tool – Tools vary in their use - analysis, design and guidelines. Hence, the

toolset considers all of these categories, given the nature of output of each step of the SBM

process.

Based on the above criteria the following tools were further selected – either replaced or the

existing ones were refined and developed based on the gaps identified (in section 3).

The value mapping tool (WP2), sustainable business model element archetypes typology (WP2),

scenario management tool (WP3), sustainability impact calculation tool (WP3), life cycle cost

estimation tool (WP3) and the sustainability accounting standards board have been added to the

existing toolset. The value tree analysis tool, scenario analysis, stakeholder mapping and system map

in steps 2, 3 and 4 have been replaced by the tools developed in WP2 and WP3 as they were

developed with specific focus on sustainability, innovation and to assist in the design of sustainable

business model/s. Moreover, these tools considered the evaluation criteria particularly of skills and

knowledge required by the facilitator (ease of the tool being used without support), availability of

the tool to be used for embedding as opposed to existing tools that have to be adapted, use of the

tool particularly related - analysis, design and guidelines. The following table further illustrates the

additions with explanation for the selection of the tools.

Proposed Steps Proposed Tools/Methods from D2.3

Proposed Tools/Methods – D2.4

Comments

Step 1 - Purpose of the business

System SWOT analysis – SUSPRONET

PESTLE/STEEPLED Sustainability continuum Scenario analysis


PESTLE/STEEPLED Sustainability continuum

No additional tools added as this set of tools (on the shelf) generate the output/s presented in table 3-1. Scenario analysis was removed from this step (and replaced) based on the expected outputs of step 1 and given the suitability in the steps 2 and 3. However, as the scenario management tool covers the functions and is aligned to scenario analysis, the latter was replaced.


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Step 2 - Identify potential stakeholders and select sustainability factors

Stakeholder mapping GRI guidelines

Value mapping tool GRI (Global Reporting Initiative)

guidelines and SASB (Sustainability Accounting Standards Board)

Scenario management tool

The value mapping and scenario management tools are included in this step as they support in the identification and analysis of a broader range of stakeholders and influencing factors for sustainability across the value network. Moreover as these tools focus on stakeholders and their interactions, and potentially cover the functions of stakeholder mapping, the latter was replaced. The SASB guideline was also added as it provides condensed versions of sustainability indices, which are industry-specific.

Step 3 - Explore and develop new opportunities for sustainable value proposition

Value innovation tool Value tree analysis

Value mapping tool Scenario management tool

The value innovation tool is now called the value mapping tool as it supports the generation of innovative ideas as well as assists in identifying and mapping values and its exchanges across the industrial network. The scenario management tool further assists in the analysis of the current and future business environment and requirements, whilst contributing to the design of sustainable business model. Both these tools cover the work of a value tree analysis - analyse and categorise various value forms, and are focused on sustainability and innovation.

Step 4 - Concept generation and selection

No tools were selected initially (D2.3), as this step was added in this deliverable.

Sustainable business model element archetypes typology

Sustainability impact calculation tool

Both these tools assist in the generation and selection of business model options and solutions for delivering sustainability. The sustainability impact calculation tool combines PSS approaches with sustainability.

Step 5 – Define and develop the value creation and delivery system, and the value capture mechanism

Osterwalder and Pigneur business model canvas

System map

Osterwalder and Pigneur business model canvas

Life cycle cost estimation tool

The system map is not included as the tools in step 2, 3 and 4 cover the visualisation of business ideas and mapping of an organisation’s system. This step requires tools that assist in developing the business network for the selected business model to deliver sustainability, which might not be a PSS innovation or approach that system map focuses on (Manzini et al. 2004, Van Halen et al. 2005 and D2.3). The Osterwalder and Pigneur business model canvas assists in designing the value delivery and capture mechanisms for the new sustainable business model.


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Table 4-1: First stage prototype toolset

The SBM process and toolset emphasises the analysis and design for sustainable business model/s.

The implementation and management phases are not being addressed by this work (section 2.1 and

3.1). Nonetheless, below are some key challenges to be considered based on the work of Wack

1985 on scenarios, Baines et al. (2007), Vladimirova et al. (2011) on transformation towards product

service systems and Teece (2010) and Christensen (1997) and Christensen et al. (2010) on business

model innovation:

Organisational challenges – governance and management structure, organisational culture

‘Business process challenges - business model, competencies, performance measures,

strategy, adopting new marketing practices and developing the new integrated offering’

(Vladimirova et al. 2011)

Financial challenges – increased investments, redistribution of finances, managing risks

Infrastructure – firm’s manufacturing facilities

Value and supply network configuration and coordination–distribution channels, resource

(financial, production facilities, human) allocation, activities for operation, internal and

external forces and drivers of business environment (system)

Stakeholder partnerships and relationships – customers, suppliers, investors, employees

Market demands and expansion (explore new markets)

The section below elaborates on the individual tools to be used in the SBM process to design

sustainable business model/s.

5 Tools for each step

The following section expands on the individual tools for each step of the SBM process based on the

following structure:

• Introduction/Overview

• Why is the tool relevant? why was it selected?

• Using the tool

• Applicability of the tool

The tools such as System SWOT analysis, PESTLE/STEEPLED and Sustainability Continuum in step 1,

Global Reporting Initiative (GRI) in step 2 and Osterwalder and Pigneur canvas in step 5 have been

explained in D2.3 and in the case of Osterwalder and Pigneur canvas referred at length in D2.1 and

D2.2 and are available for use – on the shelf. Hence, these tools will only be mentioned briefly in this

report. The primary focus will be on the new tools developed in WP2 and WP3.

The LCC estimation tool helps in providing the cost structure/summary of the available models or solutions for sustainability.


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System SWOT analysis, PESTLE/STEEPLED and Sustainability Continuum

These tools are proposed for step 1 of the SBM process. These tools are already available (on the

shelf) and have been used in industry. They are included in this step as they support in defining the

business purpose, industry-related requirements, norms and opportunities including the firm

position on sustainability (current and future) and its drivers.

Overview of System SWOT analysis

This tool is part of the output of SUSPRONET project (Tukker and Tischner 2004, 2006). The

generic SWOT analysis tool was adapted to include sustainability dimensions and technology

and legislation aspects (D2.3 2012). The objective of the tool is to assist firms in identifying the

current and future strengths, weaknesses, opportunities and threats of the firm (business

model) for sustainability.

(Tukker and Tischner 2004, D2.3 2012)

Table 5-1: System SWOT analysis

Overview of PESTLE/STEEPLED (taken from D2.3 2012)

PESTLE and STEEPLED constitute extensions of the PEST analysis (Political, Economic, Social,

and Technological Analysis). PESTLE includes Legal and Environmental factors and apart from

the previous, STEEPLED adds also Education and Demographic factors. These are considered

as macro-environmental factors that an organization has to take into consideration when

studying its business environment. It is considered as a useful strategic tool and could

potentially provide additional support to the scenario management tool in understanding the

current and future factors influencing the business environment.

Overview of Sustainability continuum (taken from D2.3 2012)

Willard (2005) proposed the ‘corporate sustainability continuum’ which represents the

progress of firms on the path towards sustainability (figure below). It was used in task 2.1, for


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the analysis of the six case studies (D2.1 2012), to identify the position each company on the

sustainability trajectory. Hence, it is included in step 1 to help firms in conducting a similar

study of current and future path for sustainability, which will potentially be an input to the

analysis, carried out in steps 2 and 3.

(Willard 2005)

Figure 5-1: The corporate sustainability continuum

Value Mapping Tool

This tool is proposed for step 2 and 3 of the SBM process. It was written and developed in WP2 by

UC (Short et al. 2012). This tool is included in these two steps as it assists in stimulating innovation,

whilst assisting in the analysis and design of sustainable business models through mapping various

forms of value and analyzing exchanges from a multi-stakeholder perspective across the industrial

network.

Introduction

At the core of business model innovation is re-thinking the value proposition. Conventionally,

business model innovation emphasises almost exclusively on creating new forms of customer

value. To create a sustainable business, a more holistic view of the value proposition is

required that takes a wider stakeholder perspective (employees, suppliers and partners,

customers, investors and shareholders, the environment, and society) and integrates

economic, social and environmental value creation (Donaldson & Preston 1995 & Bowman

and Ambrosini 2000). Hence, the value proposition needs to include benefits to other

stakeholders and specifically to society and the environment as well as to customers and the

firm. As Allee (2011) suggests, the scope of value needs to be extended in a much more

explicit manner that involves understanding tangible and intangible value flows between

stakeholders towards identifying relationships, exchanges and interactions, and opportunities

for greater shared-value creation.

Furthermore, building on D2.1 it is observed from literature and practice that product/service

industrial networks generally create a portfolio of opportunities for value innovation for their

various stakeholders.

At the core of this portfolio is the value proposition. This represents the benefits derived

by each stakeholder in the forms of exchange value involved in creating and delivering a


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Revision Date Who Comment

0.1 2012-11-30 Dr Padmakshi Rana

Samuel Short

Outline of deliverable

0.2

0.3

2013-01-14

2013-01-20

Pr of Steve Evans

Dr Padmakshi Rana

Samuel Short

1st Draft

2nd Draft


Dr Padmakshi Rana

Samuel Short

Final version


Dr Padmakshi Rana

Revised version

Role

Who Date




01

Role

Who Date



Generate solutions that

capture new value through

the reduction or

elimination of destroyed

value

Re-conceptualize

destroyed value as

missed value

Capture currently missed

value through new

activities, relationships, and

network reconfiguration

Develop new solutions that

enable the firm to capture

value from delivering social

and environmental good

product or service offering, and value in use of that product or service (Lepak et al.

2007).

In delivering the value proposition, individual stakeholders and networks collectively

may also destroy value through their activities. Value destroyed can take various forms,

but in the sustainability context is mostly concerning the damaging environmental and

social impacts of business activities. The literature often refers to these as negative

externalities, but it is felt that this terminology may tend to artificially distance these

impacts from the firm.

Furthermore, networks and individual stakeholders also often squander value within

their existing business models. This can be conceived as missed value opportunities,

where individual stakeholders fail to capitalise on existing resources and capabilities, are

operating below industry best-practice, or fail to receive the benefits they actually seek

from the network. This might be due to poorly designed value creation or capture

systems, failure to acknowledge the value, or inability to persuade other stakeholders to

pay for the benefit.

There are also new value opportunities, which tend to be the more usual focus of

business model innovation, seeking to expand the business into new markets and

introduce new products and services.

The objective of business model design for sustainability is to transform destroyed and missed

value opportunities into positive new value creation as illustrated below in figure 5-1.

(Short et al. 2012)

Figure 5-2: Opportunities for value innovation

A preliminary tool has been developed to structure the value mapping process as shown in

figure 2. The aspects of this tool to address the gap identified in literature and practice are:


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Systematic assessment of value based on the observation that business model innovation

for sustainability not only needs to seek to create new forms of value, but must also seek to

address value that is currently destroyed or missed. Four concentric circles represent the

forms of value that are of specific interest to the process of business modelling for

sustainability proposed in the figure below. Identifying them separately encourages a more

thorough and complete exploration of the current business model, and assists in identifying

areas requiring change or improvement.

A multiple stakeholder view of value - Current business modelling processes and tools

predominantly focus on customers and partners in the immediate value-chain. This process

seeks to expand this range of stakeholders. The circular tool is divided into segments,

where each segment represents a relevant stakeholder group in the product/service

network. To better facilitate a network-centric perspective, the firm is represented as

employee and owner stakeholder groups, rather than as one discrete stakeholder.

A network-centric perspective for value innovation to ensure optimisation/consideration of

value from a total network, or system-wide perspective, rather than considering a firm-

centric view of value.

(Developed from Short et al. 2012)

Figure 5-3: Value mapping tool

The circular form of the tool was developed over a series of workshops within the

SustainValue consortium and with external researchers and industrial partners. The tool

design seeks to facilitate a holistic system-perspective of value, to encourage equal


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consideration of all stakeholder interests, and explore the inter-relatedness between

stakeholders. Alternative formats such as tabular data capture were tested, but the circular

tool better engaged the participants, facilitated discussion of opportunities for value creation,

and better stimulated creative lateral thinking.

Why is the tool relevant? Why was it selected?

The value mapping tool is proposed to help companies understand and create new value

propositions to support business model design for sustainability.

Using the tool

The proposed use of the value mapping tool follows several steps:

The process begins by defining the unit of analysis as the product/service, or portfolio of

products/services offered by a business unit, firm, or an industry. The focus is on the value

proposition for the overall network, rather than the firm, to support a network perspective.

Stakeholders are identified and placed in each segment of the tool. The starting point is

generic stakeholder types, but the tool is populated with specific stakeholders to facilitate

the analysis. Specifically society and the environment are included as stakeholders. In a

workshop setting it was observed to be beneficial for some segments to initially be left

blank to allow for potential addition of specific new stakeholder groups during the process.

A facilitated brainstorming is then used to populate each stakeholder segment in turn with

the various forms of value generated for that stakeholder – starting at the centre of the

circle and working outwards. This follows a logical progression from the core value

proposition by the current business model, outwards to values further removed from the

core offering. By following this progression each step builds upon and is informed by each

preceding step as illustrated earlier in figure 5-1.

Applicability of the tool

This tool is conceived to provide a structured approach for entrepreneurs and business

managers to gain a more complete understanding of the value proposition of the firm, and to

explore opportunities for transforming the value proposition towards more sustainable

solutions. The tool is envisaged to have applicability to all business modelling activities, from

exploring opportunities for new start-ups, to assisting in redesigning business models for

established large corporations. Use of the tool and the design of any workshops to use the

tool should be adapted to the size and complexity of the business. For more complex

businesses it may be desirable to focus on specific business units or product lines to ensure

the process is manageable.

To maximise the potential of the tool, representatives or suitable proxies for each major

stakeholder group should participate in the process to solicit broad perspectives on value.

Scenario Management Tool

This tool is proposed for step 2 and 3 of the SBM process. It was written and developed in WP3 by

FIR (to be further presented in D3.3 - April 2012). This tool is included in these two steps as it


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supports the understanding of the current system (particularly key internal and external factors and

forces influencing a firm) and identifying requirements for the future that will affect the

development and transformation of a novel sustainable business model.

Introduction

Scenario analysis is a procedure based on the development of different theoretical scenarios.

Furthermore, the scenarios will be compared and evaluated towards their results respectively

consequences. Objective of the scenario analysis is to anticipate future developments of

society and find and evaluate possibilities and strategies to meet these developments.

Scenario management tool is part of the future analysis and its objective is to detect

innovation potential within a defined topic. Innovation potentials are challenges that can be

managed with a business model, product or service innovation in a potential market and are

connected with the business portfolio. The main goal of scenario-management is the

description of realistic scenarios of a strategic formation field with which innovation potentials

for business models, products or services can be identified.


The main goal of the scenario management tool is the description of realistic scenarios of a

topic by which innovation can be identified. Innovation potentials can be solved with a

business model, product, or service innovation on a potential market. The tool was selected

for it is generally applicable and not obligatorily linked to a branch or size of a company.

Furthermore, the tool is user-friendly and can be used with a variable number of participants

and external stakeholders.

Using the tool

Before the Scenario management can be applied, the following tasks need to be conducted:

identification of the scope for design (for example PSS), definition horizon and time (time

period and topic) and definition of the dimension for global and local surroundings of the topic

(global dimensions cannot be influenced, local factors can be influenced). Goal of this phase is

to detect innovation potentials within a defined topic. It is important to have a heterogeneous

group of different actors of a company/network (optional with external stakeholders) in order

to get a broader view on the topic and by respecting different stakeholder’s needs/interests.

Scenario management includes the following steps:

System Analysis and Selection of Key factors

Identify a topic with local (factors that the company can control) and global (factors that

cannot be controlled but need to be considered) surroundings. This is followed by the

selection of key influencing factors.

Development of alternative future projections

This includes the description of the present situation of the key influencing factors and

estimation of their future projections in a conservative, trend and progressive way.

Grouping of alternative projections into Scenarios

This step involves summing up the projections into scenarios in a morphological box using

intuitive and logical bundling.

Analysis of scenarios and prospect/risk-observation


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Chance analysis with the aid of the defined scenarios and identification of the biggest

innovation potential is carried out in this step.

Figure 5-4: Scenario management tool


Many companies do not know the surroundings of their business and how they may change.

The tool helps making realistic future prospects and demonstrates where future business

models, products or services can be situated. It can be used in MNCs, SMEs and start-ups of all

industries.

Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB)

These guidelines are proposed for step 2 of the SBM process. These guidelines are already available

(on the shelf) and have been used extensively in industry. Although they serve more as check-lists, it

is nonetheless considered helpful in providing guidance for identifying sustainability factors and

priority areas.

Overview of GRI

The GRI framework was developed by the United Nations Environment Program (UNEP) along

with the Coalition for Environmentally Responsible Economics (CERES) for solidarity in

sustainability reporting (Labuschange et. al 2005). It is considered as the most comprehensive

reporting framework to date (D2.3 2012). The guidelines cover all three pillars of sustainability

- environmental, economic and social. It’s intended to assist firms in sustainability reporting.

‘Some examples of indicators for the three pillars of sustainability are as follows’ (D2.3 2012):

Economic - wages and benefits, job creation, expenditures on outsourcing, research and

development, investments in training, diversity, and other forms of human capital;

traditional financial information

Environment: impact of activities, products, and service on air, water, land, biodiversity,

and human health and welfare

Social: workplace health and safety, employee retention, human rights and diversity,

wages and working conditions at all company locations and outsourced operations


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Overview of SASB

The SASB approach includes ‘a concise and relevant sustainability accounting standards that

enable companies to describe material sustainability issues affecting performance and long

term value creation’ (SASB website). It provides condensed versions of sustainability indices

that will potentially prove more manageable and relevant to industry and investors. The focus

is on materiality - what really matters in the business. SASB have proposed sector specific sets

of indices to reflect the different materiality issues of different sectors. This emphasises on the

link between business model, corporate strategy and sustainability issues.

Sustainable business model element archetypes typology

This method is proposed for step 4 of the SBM process. It has been written and developed in WP2 by

UC (Bocken et al. 2012). This tool is included in this step as it supports in the transformation of the

new sustainable value proposition by providing a selection of groupings and mechanisms that help in

delivering business model innovation for sustainability.

Introduction

D2.1 explored potential “sustainable business models” in the literature, such as closed-loop

business models, social enterprises and PSS (e.g. see Tukker 2004 and Mont and Tukker 2006

for an overview). With the exception of some recent literature (e.g. Boons and Lüdeke-Freund

2012 who propose a classification by social, technical and organisational sustainable business

model innovations) few authors have sought to unify the various examples in literature and

practice in a useful categorisation. The lack of a common source of information in this area

makes it difficult for practitioners to understand the scope of business model innovation for

sustainability. This then limits practical experimentation and implementation of sustainability

solutions in industry and restricts the potential for exploitation of synergies between different

types of innovations, so further limiting the potential benefits.

A comprehensive framework of business model innovation mechanisms is proposed as a key

tool in assisting practitioners in designing new business models for sustainability. Building on

the preliminary study work presented in D2.1, a revised categorisation of business model

innovations is proposed based on systematic enquiry into how the sustainability benefit

associated with each particular innovation is delivered. The ‘sustainable business model

(SBM) element archetypes’ typology describes groupings of mechanisms and solutions that

might contribute to building up the business model for sustainability. The table below

summarises the sustainable business model element archetypes along with supporting

examples of such innovations in practice.


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SBM Element Archetype Examples from Literature and Practice Review

1. Maximise material and energy efficiency (Do more with less resources, generating less waste, emissions and pollution) 2. Create value from ‘waste’ (Turn waste streams, emissions, and discarded products into feed stocks for other products and processes, and make best use of under-utilised capacity) 3. Use renewable resources (Use of renewable materials and energy sources rather than finite non-renewable resources) 4. Deliver functionality, rather than ownership (Provide services that satisfy users’ needs without having to own physical products) 5. Encourage sufficiency (Solutions that actively seek to reduce consumption and production) 6. Adopt a stewardship role (Proactively engaging with all stakeholders to ensure their long-term health and well-being) 7. Re-purpose the business for society/environment (Focusing the business on delivering social and environmental benefits, rather than economic profit maximisation) 8. Integrate business with other stakeholders (Integrating business into local communities through inclusive collaborative approaches to business) 9. Develop scale-up solutions (Delivering sustainable solutions at a large scale to maximise benefits for society and the environment) 10. Radical innovation

Bio-mimicry, Dematerialisation (products and packaging), Green Chemistry, Increased product functionality (to reduce number of products required), Lean Manufacturing, Low-carbon solutions, Slow Manufacturing Circular economy, Closed-loop production, Cradle-to-Cradle, Extended Producer Responsibility, Industrial symbiosis, Re-cycling, Re-manufacturing, Re-use, Sharing assets (Collaborative consumption), Take-back Management, Use excess capacity Renewable energy solutions, use of non-finite materials Product Orientated PSS – maintenance, extended warranty Use Orientated PSS – Rental, Lease, shared Result-orientated PSS – Pay per use PFI (Private Finance Initiative)/DBFO (Design, Build, Finance, Operate), CMS (Chemical Management Services) Consumer/User Education (Educational models – communication and awareness), Demand Management (including Cap and Trade) Frugal business, Premium branding (limited availability), Product Longevity, Responsible product distribution/promotion, Slow Fashion Bio-diversity protection, Consumer care - promote consumer health and well-being, Choice-editing by retailers, Ethical Trade (fair trade), Radical transparency, Resource Stewardship Base of Pyramid Solutions, Bio-diversity regeneration, Entrepreneur/ Business Support models Hybrid businesses, Not-for-profit Social Enterprise (for profit) Social regeneration initiatives Alternative ownership structures – Collectives, Partnerships, Cooperatives, Employee ownership Home-based working Localisation Crowd-sourcing Collaborative approaches (sourcing, production, stakeholders) Licencing, Franchising Open-innovation Lobbying/ collaborating to change underlying principles of


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(Developed from Short et al. 2012)

Table 5-2: Sustainable business model element archetypes typology

The order of the archetypes broadly seeks to introduce a continuum from technology-based

innovation through to progressively more social and organisational-orientated innovations.

These archetypes are generally only partial solutions for delivering a sustainable business

model. While they can each be applied in isolation, in many cases several different archetypes

may be combined to deliver a complete business model.

Why is it relevant? Why was it selected?

The main aims of the typology are to:

Provide a means of categorising and explaining business model innovations for

sustainability through exemplars.

Define generic mechanisms for actively assisting the innovation process for embedding

sustainability in business models.

The proposed categorisation of archetypes specifically aims to stimulate creativity and reduce

some of the uncertainty and risks typically associated with business model innovation for

sustainability, without being overly prescriptive with solutions. Demonstrating various options

and possibilities for sustainable business models provides inspiration for practice (companies,

NGOs, government) on how to translate social and environmental value creation into

economic profit and competitive advantage for the firm to build the ‘business case for

sustainability’.

Using the typology

The proposed typology is intended for use in a workshop environment to provide exemplars

and a structured approach to part of the business model design activity. The set of archetypes

is envisaged to provide assistance in two main ways:

Assisting in developing the value proposition, by providing a structure for identifying and

exploring opportunities for transforming currently negative outcomes of the business

model, or exploring new ways to create positive sustainable value.

Designing and developing the business model structure by providing guidance in

mechanisms to realise a desired value proposition.

The archetypes and the examples shown to illustrate these archetypes are not generally entire

business model innovations in their own right, but rather elements that constitute part of a

business model design. The business model should ultimately be developed using a

combination of several of the various archetypes.

Preliminary testing in workshop settings (two workshops with various industry partners and

one with engineering students) has demonstrated the value of such an approach in

stimulating innovative thinking. Work and trials are on-going to refine and validate the

business model element archetypes to further enhance the innovation process, whilst

(Introduce system change through introduction of radical new technologies to facilitate a greener economy)

doing business Step-change technology solutions – Including renewable energy solutions, radical changes in product functionality


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developing the methodology and building a comprehensive process with the appropriate user

interfaces.

Applicability of the typology

This typology is conceived to provide a structured approach for entrepreneurs and business

managers to investigate mechanisms for creating and delivering new sustainable value

propositions, and to explore opportunities for transforming the value proposition towards

more sustainable solutions. The typology is envisaged to have applicability to all business

modelling activities, from exploring opportunities for new start-ups, to assisting in redesigning

business models for established large corporations.

Sustainability Impact Calculation Tool

This tool is proposed for step 4 of the SBM process. It was written and developed in WP3 by FIR (to

be further presented in D3.3 - April 2012). This tool is included in this step as it supports in

evaluating the sustainability impact across the life cycle and in the selection of sustainable solutions.

Introduction

The tool’s objective is to assess and measure sustainability impacts on society, environment,

and economy as well as their correlations and development over time. The modelling

approach covers all life cycle phases (cradle to cradle) and therefore, provides a holistic

sustainability evaluation of a product service system (PSS).

Why is it relevant? Why was it selected?

The tool is relevant because it combines existing PSS approaches for the detection and

assessment of sustainability impacts with sustainability aspects and thus forms a new

evaluation methodology for sustainable solutions; economic, environmental and social

sustainability are considered. Hence, the tool was selected as it helps to get transparency over

the sustainable impact of new solutions.

Using the tool

The first task is to stipulate a “Service Unit”. A Service Unit (S.U.) defines a product (or service)

and its usage cycle, e.g. if the tasks would be to estimate a T-Shirt’s sustainability impact, a

S.U. would be defined as one wearing cycle of the T-Shirt including washing and ironing.

Besides it has to describe for how many life cycles the T-Shirt will be used. Costs such as

manufacturing, raw materials, transportation and delivery, will be broken down into the

defined number of Service Units. The result of the tool is a concrete estimation of the Service

Unit. The tool is based on Excel calculations and consists of different files and sheets within

each file. Each file represents one life cycle phase, including material input and output, social

inputs and environmental, economic and social impacts. The additional output file then

calculates and consolidates the environmental, economic and social impacts.


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Figure 5-5: Sustainability impact calculation tool


The Sustainability Impact Calculation tool demonstrates how a sustainable product or product

service system performs over its whole lifecycle, while covering the economic, environmental

and social aspects. Economic sustainability is illustrated by the net present value (NPV) and life

cycle costing (LCC), environmental sustainability is measured via the MIPS1 that considers the

total material input and divides it into five categories (abiotic and biotic material, air, water,

erosion). Furthermore other KPIs or methodologies are combined to assess the environmental

impact. Social sustainability is measured with the aid of the SA 80002 guideline and further

social aspects. The integrated life cycle concept segregates investment into separate phases

over the life cycle and in this way identifies “cost drivers” of each phase.

The tool is at the prototype stage and was used once with one of the industrial partners of

SustainValue. However, the mode of operation is not linked to a special branch or to a size of

an industry. If many companies use this tool, a wide basis for comparison can be created

which can help with the classification and evaluation of Service Units. So the tasks for the

future are to standardize the data and the evaluation of the tool with more industry partners.

Osterwalder and Pigneur Business Model Canvas

This tool proposed for step 5 of the SBM process. This tool is already available (on the shelf) and has

been used by the developers in industry. It is included in this step as it supports in the coordination

1 Material input per service unit (MIPS) is a methodology developed be the Wuppertal institute for Climate, Environment

and Energy which tries to measure and to estimate the environmental impacts caused by a product or service. The whole life-cycle from cradle to cradle (extraction, production, use, waste/recycling) is considered. MIPS can be applied in all cases, where the environmental implications of products, processes and services need to be assessed and compared (adapted from: http://wupperinst.org/en/projects/topics-online/mips/). 2 Social Accountability (SA) 8000 is a ‘standard based on international human rights norms and national labour laws that

will protect and empower all personnel within a company’s scope of control and influence, who produce products or provide services for that company, including personnel employed by the company itself, as well as by its suppliers/subcontractors, sub-suppliers, and home workers’ (SA 8000 2008).


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and configuration of the key activities, resources, partners and channels and the value exchanges

and value capture for the stakeholders across the network.

Overview (from D2.1 2012)

Osterwalder and Pigneur’s book ‘Business Model Generation’ offers a business model canvas

and guide for working through business model conceptualisation. The business model canvas

(figure below) seeks to develop a more generic framework with broad applicability across all

industry sectors, utilising a standardised vocabulary and semantics. Their canvas attempts to

capture all the dominant components from the existing literature, and is made up of nine

building blocks. Their more recent iteration of the framework renames value configuration

and capabilities to give a business ontology of value proposition, customer segments,

channels, customer relationships, key resources, key activities, key partnerships, cost

structure, revenue streams (Osterwalder & Pigneur 2010). The canvas places emphasis on

defining concrete processes and operational activities. Hence, it has been selected as a tool to

assist in developing the value creation, delivery and capture mechanisms.

(Osterwalder and Pigneur 2010)

Figure 5: Osterwalder and Pigneur business model canvas

Life Cycle Cost Estimation Tool

This is another tool proposed for step 5 of the SBM process developed in WP3 by ELCON and VTT.

This tool is included in this step as it supports in the evaluation and selection of a cost effective and

sustainable solution, while providing a summary of the cost incurred across the life cycle. This will

assist in the development of the creation, delivery and capture of value. The tool is developed for

power supply systems but the same approach can be used for any product.

Introduction

Life Cycle Cost (LCC) Estimation tool calculates and estimates the costs and effects of products

during products’ life cycle. With the tool user can compare five different solutions according

to their annual and life time costs.


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Main cost categories that are taking into account are acquisition costs, use costs and disposal

costs. Acquisition costs include the acquisition and installation of the components selected to

the current solution. Annual use costs are costs caused by preventive and corrective

maintenance, outages and electricity consumption. Power supply systems can also include

components for power production (e.g. wind mill or solar cells) which is taken into account as

a decreased need for power from outside. All cost caused by recycling of components or

materials and waste treatment are considered disposal costs.

As a result the tool calculates the life cycle costs of different options. Life cycle costs are

shown by cost categories so that the user can make a comparison of the options by total costs

and also by different categories. Life cycle profits are not considered because the power

supply system is to ensure good quality of power supply and thus it does not provide direct

profit, for example it does not increase production volume.

When considering future costs estimates are obviously uncertain. The effect of this

uncertainty is assessed by sensitivity analysis which is done by Monte Carlo simulation. In one

simulation run it is calculated life cycle costs of compared options in a case when future costs

are different than what was first estimated. When this calculation is done several, e.g. 1000

times the variation of expected life cycle costs becomes visible. As the cost factors differ case

by case this tool cannot directly be generalised for all kind of products. In this power supply

system case it is easy to combine financial and environmental aspects with life cycle costs

because the main environmental effects come from electricity consumption whose monetary

value can be easily measured.


Too often B2B negotiations concern only purchasing cost and do not take the product’s whole

life cycle costs and effects on environment into account. With this LCC estimation tool a

solution provider can discuss with its customers future costs which are typically not as well

understood as investment costs are. The products that have better impact on environment

are often more expensive by purchasing price. It is believed that when a customer can see

estimates of use period costs he can more easily accept higher purchasing price. The tool has

been developed to serve Elcon’s need to explain higher purchasing price with lower life cycle

costs and more sustainable solutions.

Using the tool

The LCC estimation tool is done in MS Excel 2010. In practice the tool is an Excel file which can

be used in any computer having Excel program. Excel is selected because it is commonly used

program and it enables to make a demo tool reasonably quick.

The tool has a form style interface which makes data input much more user friendly than

using Excel worksheets. When using the tool a user fills in cost and environment data about

different solutions to be compared. Different input data types are grouped in own pages to

make data input logical and clear.

When making LCC calculations with the tool, user first selects needed components for current

solution. Then user gives estimates about the expected value of each cost factor for each


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selected components. This is done for all solutions to be compared. Estimates can be based on

information provided by different component suppliers, user’s own expert judgements or

other relevant data source.

Sensitivity analysis to take into account uncertainty concerning especially future costs is done

by Monte Carlo simulation. For simulation, user needs to select cost factors. Moreover, the

most uncertain factors should be included in simulation. For selected cost factors the user

needs to define statistical distribution which best describes the opinion on the variation of

current cost factor. To help in the selection of statistical distribution the LCC estimation tool

includes a graphical distribution selection tool. In that graph the user can see the shape of the

selected distribution. The user can also change default distribution parameter value to form

distribution shape.

Simulation gives new cost factor values for all simulated cost factors according to defined

statistical distribution. New estimate of life cycle cost is calculated with these simulated

values. If some cost factors are not simulated, user given constant values are used in LCC

calculation. Results of LCC calculations before simulation and after simulation are given in

form of tables and figures.


The tool will provide an indication to the customer about the kind of value they will receive in

the long run and will guide them to choose products that cause less harmful effects on the

environment and give financial benefits. In this LCC estimation tool positive environmental

effects come from decreased electricity need or the possibility to produce sustainable

electricity by wind mills or solar cells.

For a decision maker it is important to be able to easily get an overview of relevant

information. The tool provides reports and summary figures which make it easy for the

decision maker to compare annual and life cycle costs of different options. Annual and life

cycle costs are shown also by cost categories. Thus the decision maker may weight his decision

according to most important costs, e.g. electricity costs. The simulation part clarifies the

uncertainty of future costs and provides information about its effect for the selection of best

option.

The LCC estimation tool will be used in negotiations between a solution provider and a

potential customer. The tool provides information which supports customer’s decision when

selecting most suitable option for current applications. Compared options can be either

different options of one solution provider or options from different providers.

The tools and methods presented are expected to assist in the sustainable business modelling

process to help firms design sustainable business models. They will be used and tested with

SustainValue industrial partners for further improvement and refinement before being available to

non-participating firms. The following section presents the first stage prototype process and toolset.


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6 Prototype process and toolset

The deliverable presents the first stage SBM process and portfolio of tools and methods (table 7-1),

which is expected to support the analysis and design of sustainable business model/s. Business

model redesign could assist in embedding sustainability into the core purpose and processes of

firms, whilst delivering sustainable value (environmental, social and economic). This requires a

comprehensive consideration of a system-wide perspective to rethink the value proposition and to

create, deliver and capture sustainable value. Hence, the proposed design process for sustainable

business modelling and the supporting tools and methods, have been developed based on the

premise to drive business model innovation for sustainability.

Proposed Steps Proposed Tools/Methods Expected outputs

Step 1 - Purpose of the

business


PESTLE/STEEPLED

Sustainability continuum

Reason for being in the business,

approach and drivers for

sustainability, products and service

bundles, industry-related needs,

norms and opportunities

Step 2 - Identify potential

stakeholders and select

sustainability factors

Value mapping tool

GRI guidelines, SASB (industry-

specific)


(developed in WP3)

Potential stakeholder types and

what do they value, sustainability

priorities

Step 3 - Explore and develop

new opportunities for

sustainable value proposition

Value mapping tool


(developed in WP3)

Sustainable value proposition for a

firm and its stakeholders – value

opportunities

Step 4 - Concept generation

and selection

Sustainable business model element

archetypes typology

Sustainability impact calculation tool

(developed in WP3)

Transformation/development of the

new sustainable value proposition

Step 5 – Define and develop

the value creation and

delivery system, and the

value capture mechanism

Osterwalder and Pigneur business

model canvas

Life cycle cost estimation tool

(developed in WP3)

Key activities, key resources, key

partners, key channels, key mind-

set and the value exchanges and

value capture for the stakeholders.

Table 6-1: First stage prototype SBM process and toolset

The above process and toolset will be tested and refined with the SustainValue industrial partners.

The areas for improvement and lessons learnt will be recorded and serve as data input for further

enhancement of the process and toolset. The following section will provide initial overview on the

use and test phase.


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7 Using the SBM process and toolset

This section elaborates on the preliminary structure for using the (overall) prototype SBM process

and toolset during the use and test phase (February-August 2013). The SBM process and toolset will

be used in individual session/s (possibly spanning over 1-2 days) with each industrial partner, with

potentially groups of 2-4 people in the firm and we will be seeking feedback and making

observations of the efficacy of the process and tools. Based on the observation of deliverable 5.1 on

assessment of case studies the process and toolset will be primarily used and tested with Riversimple

and CLAAS, given the preferences of the industrial partners (Appendix 3). However, as tools from

WP3 (developed by FIR and VTT) are integrated into the portfolio, this will involve ELCON and FIDIA,

depending on their expression of interest.

Some of the key questions to consider prior to, during and after the testing session/s (but not limited

to as users could come back with spreadsheets, spend time with stakeholders) are as follows:

Prior to:

What do you prepare for the workshop – understanding of the business and its engagement

with sustainability?

Who will be involved in the workshop – senior and divisional managers, employees in a

specific department or a representative from departments across the organisation?

Who is the sponsoring the session/s and how do they make the investment decision?

During and after:

Plan of action for taking it forward to take the output forward – implementation and

management?

How would it work – activities to be undertaken, resource allocation, planning a sequence of

action?

The structure for the test and use phase is aligned with the SBM process and is as follows:

Setting the Scene - Step 1 of the SBM process

Define the unit of analysis – industry, corporate portfolio, business unit, or discrete

product/services

Define the purpose of the business and the drivers for sustainability

Analyse the strengths, weaknesses, threats and opportunities of the business with

regard to sustainability (System SWOT analysis or PESTLE/STEEPLED)

Perspectives on position on the Sustainability Continuum (current and future target

position)

Analysing the current and future factors and requirements and priorities - Step 2 of the SBM

process

Identify stakeholders in the value network (Value mapping tool)

Identify sustainability (social environmental and economic) factors and priorities (GRI,

SASB and Scenario management tool)

Understand and analyse various forms of value across the network to develop the new

sustainable value proposition - Step 3 of the SBM process


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Analyse the relationships and exchanges between the stakeholders through mapping

the current value, value destroyed and missed and value opportunities (Value mapping

tool)

Develop the new sustainable value proposition (Value mapping tool, Scenario

management tool)

Selection and development of the new value proposition - Step 4 of the SBM process

Select the most appropriate sustainable business model or solution for the

transformation of the new value proposition based on sustainable business model

archetypes or the sustainability impact calculation tool, so as to seek ways/paths to

capture opportunities for value creation (Sustainable business model element

archetypes typology, Sustainability impact calculation tool)

Analyse and design of the value creation and delivery system, and the value capture - Step 5

of the SBM process

Develop the value delivery and capture system (key activities, channels, resources),

whilst analysing the cost incurred through the life cycle to assist in evaluating the

options (Osterwalder and Pigneur business model canvas, LCC estimation tool)

This structure is yet to be tested with the industrial partners so it is expected to be revised and

enhanced during the test and use phase based on feedback.

How will the toolset be used?

The selection of the tools in each step of the SBM process will depend on the user with

regard to the type of the organisation, scope of operations, resource availability (human and

financial), scale and size and the position on sustainability. For example if it’s a small medium

sized enterprise (SME) which is at the early stages of introducing and understanding

sustainability with financial and human resource limitation then it could focus predominantly

on steps 1, 2 and 3 by using the sustainability continuum, value mapping tool or scenario

management tool for assessing various forms of value across the network through multi-

stakeholder view, identifying sustainability priority areas and developing the new sustainable

value proposition. They could begin selecting potential business model examples (alternative

business models) that deliver this new value proposition through the sustainable business

model elements archetypes typology. The firm can then proceed to step 5 (at a later stage)

on defining and developing the path for value creation, delivery and capture. The

explanation of the tools in section 5 provides further detail on the use and applicability of

the individual tools, in particular those that have been developed in WP2 and WP3, to help

firms in selecting the tool most appropriate to and aligned with their requirements.

7.1 Experiments with industrial partners The selected SBM process and toolset will be further improved and refined during the use and test

phase with the industrial partners (depending on the opportunities and timing available from each

industrial partner). It is expected that this phase will assist in identifying the performance (what

worked, what didn’t work and what needs changing), whilst contributing towards Deliverable 2.5 on


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‘lessons learnt report, documenting the impact from use of the tools and methods and areas for

improvement’ (SustainValue proposal 2011).

During the development of the SBM process, value mapping tool and sustainable business model

element archetypes typology they were discussed/tested with SustainValue industrial partners

(Riversimple and CLAAS) and external firms. Riversimple and CLAAS are the two industrial partners,

who have their use cases aligned to WP2 outputs as initially established in D5.1 (Appendix 3). The

LCC estimation tool developed by VTT for WP3 is included in the toolset for sustainable business

modelling. The tool was developed with input from Elcon (use case aligned to WP3- Appendix 3) and

used with the company. The following sections are demonstrative examples of these experiments.

7.1.1 SBM process, Value mapping tool and Sustainable business model element archetypes

The process, value mapping tool and sustainable business model element archetypes were

tested/discussed with Riversimple at workshops and meetings. Following are the preliminary

outcomes:

SBM process:

Riversimple’s use case description (in D5.1) highlighted - ’the business model adopted by Riversimple

is already very much focused on sustainability. It would be interesting to try the SustainValue

business modelling process to see if we come up with the same business model’. This was tested

through the session on using the SBM process. Initial observations are as follows:

The process is similar to that of Riversimple’s, but a further improved process was suggested

based on the Riversimple experience, in particular for steps 3 and 4 of the SBM process,

focusing on clarity in the transformation phase (sub-section 2.2).

The SBM process is ad hoc and iterative, as in Riversimple’s case.

Visionary leadership was mentioned to be important to drive sustainability in the company.

Value mapping tool and sustainable business model element archetypes: The development of the value mapping tool involved input from initial case study carried out with

Riversimple (elaborated in D2.1). The value mapping tool in collaboration with the corporate

sustainability continuum (current and future target position for sustainability) and sustainable

business model element archetypes (illustrating the four forms of value – value captured, destroyed,

missed and opportunities, and stimulating ideas on the transformation phase) were tested in a

workshop (details below) with Riversimple (introduction presentation - Appendix 4). The initial

observations are as follows:


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Figure 7-1: Riversimple – populated tool

Workshop participants:

Riversimple: Hugo Spowers (Founder), Nicolas Sergent (Engineer)

WP2 research team: Dr Padmakshi Rana, Samuel Short

Collaborating researcher: Dr Nancy Bocken (facilitator)

Workshop time: 2.5hrs

Workshop venue: Birmingham

What are the preliminary research outputs/ ideas?

Unit of analysis – Riversimple

Stakeholders Value captured Value destroyed Value missed Value opportunities

Customers “Users”

Fun to drive, cool

Convenient mobility

Seen to be ‘green’ – status value

User-ship

No upfront payments (affordable)

No maintenance concerns

Safety when driving

Lack of infrastructure to support long range travel

Driving behaviour not incentivised to be good

Not having the most efficient car in their fleet

Customers don’t yet see status tied to not wasting money on owning a car

Increased hydrogen infrastructure to provide greater range

Zip car and car clubs as customer groups

Investors and stakeholders “Investors”

Stability – long-term revenue streams

Working capital issues related to PSS (supplier has to finance rather than customer)

Investors don’t appreciate steady-state concepts

Promote as being safe as real-estate investments

Employees


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Suppliers and partners “Commercial Partners”

PSS solution – long-term revenue streams, amortise value

Contract security

Resilience in times of economic crisis because not cyclical, not dependent on new sales

More trust

Shared value opportunities for partnership with public transport to deliver long distance solutions

Environment Total mileage reduced

Resource efficiency - Reduce resource use (raw material, energy)/mile travelled

Recyclability of all components – particularly the carbon fibre

Potential for higher maintenance and wear and tear costs due to non-ownership model.

Rebound effect – more efficiency and convenience creates more driving and more cars on the road.

Lobby against building roads to limit car use!

Community “Neighbours” – Stakeholders without a commercial arrangement

Energy security – decoupled from oil dependency

Reduced car parking requirements

Reduced congestion

Improved safety for people outside the car

Government Included within Neighbours

In general the firm considers government as part of neighbours category as they simply make up part of society. The value they seek should be closely aligned with community/society.

Provide loan guarantee scheme to facilitate PSS

External agencies Included within Neighbours

NGOs, standards bodies, etc. who facilitate or influence the firms activities, or their customers and partners activities. Included within Neighbours because there is generally no commercial relationship. Note that in some instances it is feasible that NGOs and other external agencies might enter into a commercial relationship to facilitate a particular value proposition. In this case, these stakeholders would be considered as Commercial partners.

Media Not considered directly

Included within Partners, maybe also Users and Neighbours depending on context. Could be as a commercial supplier of advertising and promotional activities; as a customer of news-worthy information from the firm, and as a neighbour in a more general reporting role that facilitates public awareness of the firm’s activities.

Academia Not considered directly

Perceived to be included within Partners and Neighbours depending on the role under consideration (e.g. Commercial supplier of research services, but non-commercial relationship in the provision of educated graduates or government funding base research.

Table 7-1: Preliminary research outputs/ideas - Riversimple

Tool evaluation:

What went well during the workshop?

The workshop consisted of 45mins introduction and discussion around the tools. The

introduction was comprehensive and seemed to avoid confusion during the use of the tool.

Overall, this worked well.

The workshop itself was productive. The meeting room facilities were good – lots of space for all

to stand or sit around the board and everyone engaged in the process.


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What did not go well during the workshop?

The printed tool (A2), as before, proved too small to adequately position all the ideas in a clear

manner, and ended up being crowded.

There was a tendency for digression and tangential discussion on interesting and related, but not

relevant, subjects for the task in hand. This slowed the process, and perhaps limited discussion on

more pertinent points.

The participants were limited to two people who are deeply embedded in the firm. This is good in

some respects because they know the business extremely well, and having the founder involved

provides significant depth to the discussion. However, they are focused on their current solution

that possibly restricts them from thinking about or considering anything that is outside their

current perspective. This was perhaps evident in the relatively limited identification of value

missed, value destroyed and new opportunities. Involving some other external stakeholder

groups might well have opened the discussion a bit to other opportunities.

Workshop settings/ process

Venue was fine, and allowed good interaction between all the participants. A larger print of the

tool might have better engaged everyone though. The size didn’t really encourage everyone to

put their own post-it notes on the tool – rather it was all left to the facilitator – perhaps a much

larger tool would be better in this respect.

A more methodical approach to writing post-its and placing them on the board might have been

a better brainstorm. As it was, each idea was shouted out and then opened to discussion. In this

case, all the participants were willing to talk, but in other environments, such an approach might

have inhibited some from putting forward their ideas.

Time for the process was adequate, but ultimately we would probably want to make more

progress in a 2hr workshop. A more methodical approach will ultimately be necessary, although

in this particular case it was recognised in advance that discussion rather than following a strict

process would be beneficial.

Specific recommendations from workshop participants:

Usability and ease of use of the tool

Overall participants liked the tool, and expressed interest to using it further. They seemed to

particularly like the idea of splitting value into destroyed/ missed/ opportunities to structure

thinking in alternative directions.

They felt the circular format was the most appropriate, apart from being very small and

particularly crowded in the centre. Addressing the problem of over-crowding in the centre needs

to be done.

The differentiation between value missed and new opportunities proved rather poor.

Effectiveness of the tool to stimulate ideas

Post-workshop review highlighted that some stakeholder segments were poorly considered,

indicating perhaps a need for a more methodical management of the brainstorming process.


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Perhaps there needs to be more restriction on discussion to focus on populating the tool; and

then as a second step facilitate a discussion.

The development of the value mapping tool involved input from initial case study carried out with

CLAAS (elaborated in D2.1). The value mapping tool in collaboration with the corporate sustainability

continuum (current and future target position for sustainability) and sustainable business model

element archetypes (illustrating the four forms of value – value captured, destroyed, missed and

opportunities, and stimulating ideas on the transformation phase) were tested in a workshop

(details below) with CLAAS (introduction presentation - Appendix 5). The initial observations are as

follows:

Figure 7-2: CLAAS – populated tool

Workshop participants:

CLAAS: Christian Schäperkötter (Service Engineer), Anja Wilske (Product Manager) – both for

systems-based services

WP2 research team: Dr Padmakshi Rana, Samuel Short

Collaborating researcher: Dr Nancy Bocken (facilitator)

Workshop time: 2.15hrs

Workshop venue: Berlin

What are the preliminary research outputs/ ideas?

Unit of analysis – Harvesting Tractors

Purpose - Machine solutions, harvesting specialist, ensuring shareholders interests (revenue

generation)


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Customers

Reliability – machines that work well and secure work of multiple months.

Provide service and assist in good yield.

Availability of spare parts.

Pride in using the machines.

Intelligent use of data for machines - Telematics

Effect of the tractors on the soil – high pressure, additional process to plough.

Over capacity (security)

Non-operating costs for example the tractors used only for 3 weeks in a year, storage and organisation.

Dependence on diesel.

Improve use of data in enhancing machine efficiency.

Customer’s perception of the Company’s machines – further development in improving and enhancing the image in the market.

Only customised machines are used in various countries for example harvesting machines used in China and India but they do not need to only use the ones that are custom made, the areas could also benefit from other existing machines. Rather than only using customised harvesting machines for markets in India and China, the countries could benefit from other existing machines in the Company, despite not being made specifically for their markets.

Equipment failure.

Centralised production – carbon footprint in shipping.

Different techniques to make smaller units/machines – divide the wheel pressure.

Localising production could be a possibility in the future.

Leveraging image and perception of the Company’s machines.

Investors and Shareholders

Family owned, employees can buy shares.

Value driven with long term views.

Pride in owning shares in the Company.

Some projects in the company are not always financially viable/profitable but are taken on. This would not be the case in a public limited company.

Values over profits. Projects that align with the Company values.

Long term project investment.

Employees

Pride in working for the Company.

Numbers of the employees are also farmers so they bring in the agricultural/technical know-how.

Flat corporate structure of the company – informal.

Capturing skills of employees from their previous work experiences.

Provide farming/agricultural skills for the BRIC nations (which is not captured), countries where the Company plans to extend the market for its machines.

Attracting employees/recruitment by investing in the community.

Suppliers and Partners

A significant percentage of the production of the machines (parts) is based on suppliers.

Dependency on suppliers.

Mistakes/errors in design, assembly, which have to be repaired in the field for example a different country result in complexity and cost – faulty parts, quality cost rises.

Localisation of the plant.


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Environment

Precision in the farming/efficient harvesting - use of the land and resources.

Soil fertilisation – cutting the straw into small pieces during a harvest assist in enriching the soil.

Optimise use of land and resources.

Destroying value in the logistics chain – carbon emissions, waste, energy use etc.

Effect on the soil – biodiversity, farmland quality.

No alternative fuel source – dependence on diesel.

Use of data in efficiency improvement.

Not able to drive development of new machines –reliance on other sectors.

Better equipment.

Making lighter machines and different techniques in harvesting.

Localising production.

Society

Create jobs

Investing in the community towards education - elementary schools/kindergarten.

Secure food – nutritional value.

Goodwill in the community.

Noise issue for the neighbours during harvest time.

Further investments in the community for example recreational activities – cinema, theatre, could help in recruitment or retaining employees by providing a pleasant neighbourhood.

Independent

dealers and

importers

Service contract.

Constant revenue generation (cash flow).

Missing skills focused on machinery of some dealers to help understand the machine or identify problems – complexity in skills set.

Image of the Company in relation to its competitors – perception of premium brand.

Developing/enhancing the image and perception of the Company and its products.

Government

subsidies

Farmers being able to buy premium machines.

Table 7-2: Preliminary research outputs/ideas - CLAAS

Initial outcomes from both workshops:

The four forms of value and explicit mention of stakeholders’ was considered helpful in

supporting Riversimple and CLAAS in improving interactions between stakeholders.

The tool was considered as being helpful to both companies in identifying new stakeholders or

ones that may have been missed.

The mapping assists in forming a holistic view of the system, while identifying new opportunities

for collaboration in the network and priorities for sustainability.

Using the sustainable business model element archetypes for illustrating the value forms during

the introduction assists in clarifying the value forms and stimulating discussion on the new

sustainable value proposition/s transformation, while providing workshop participants with a

selection of alternative business models that deliver sustainability.

Summary of recommendations/changes and comments based on the process evaluation of both

workshops by the researchers:

A larger print-out of the tool or project the tool.

Consider redesign of the tool to reduce the number of stakeholder groups and include business

purpose in the tool (inner most circle).


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o Two different versions of the tools were experimented with the companies. The tool used

with Riversimple (appendix 4) had all the stakeholders groups identified without the

‘purpose’ circle. It emerged from post workshop discussions that having blank stakeholder

segments would help companies identify additional stakeholders of their business (e.g.

missing ones or those they may not have thought off). Likewise, it was considered to begin

the value mapping process by brainstorming the ‘purpose’ of the company/unit of analysis

to stimulate the participants in thinking about the reason for being in the business and

position on the corporate sustainability continuum.

o As a result the workshop with CLAAS involved the version of the tool (appendix 5) that

integrated the above points.

Review the four circle format and whether the differentiation between value missed and new

opportunities could be improved.

Need to further develop a more comprehensive workshop that integrates the sustainable

business model element archetypes for stimulating ideas and discussion on transformation.

The GRI and SASB guidelines could be used with participants who are not familiar with the

dimensions and factors of sustainability. This could be part of the introduction and dependant on

the participants.

Providing a written up copy of the session and a copy of the tool potentially provides them value

and enables them to take it further on their own.

o The written format presented here for Riversimple is an example of feedback given to the

companies.

A set of prompt questions to assist facilitation during the workshop.

Change of the name to value mapping tool as it’s more reflective of the mapping activity and

encompasses the objective of stimulating innovation and ideas (reason elaborated in table 4-1).

7.1.2 LCC tool

The main goal for the tool development for Elcon was that with the LCC tool the solution provider

can discuss the lifecycle costs with its customers. It is believed that when a customer can see some

estimates of the total ownership costs he/she can more easily accept a higher purchasing price.

All calculations implemented into the LCC tool are done in Excel worksheets. To make the tool more

user-friendly separate forms for data input and result examination were also developed. Forms were

created by Excel VBA programming language. Although data input and result examination are

possible without form interface, it was implemented into this prototype because the user-friendly

interface facilitates substantially better real user tests.

The functionalities of the tool are divided into several elements which are shown in the figure below.

The first element concerns basic data, e.g. planned use time and fuel prices, which is same for all the

examined solutions. The second element includes data input for the solutions to be compared.


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Figure 7-3: Home page of the LCC estimation tool

The tool allows five solutions maximum to be compared at a time. The data input form for solutions

includes separate tabs for acquisition data, maintenance data, system configuration data, energy

consumption data, data concerning unavailability caused by outages, and disposal data. The same

data tabs serve all compared solutions. Figure 7-4 presents an example of the data input form for

acquisition data where user selects components included in the current solution and inputs some

basic information about the selected components in addition to acquisition and installation costs.

Figure 7-4: Example of the data input form

Initial outcomes:

In the Elcon’s tool, the key performance indicators are expected annual cost, life cycle cost,

discounted life cycle cost (i.e. net present value (NPV), and annual cash flow values. All result figures

are shown as numeric values in a table, and also as graphics. An example of result figures is shown in

Figure 7-5.


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Except for total costs, also the proportion of different cost factors of the total cost is presented as a

bar chart. Examining how different solutions affect cost factor values supports strategic decision

making. For example, if a company’s strategic goal is to reduce energy consumption or increase own

energy production the examination of cost factors may elicit the best solution from the strategic

point of view. By examining cumulative cash flows it is possible to find out e.g. how many years are

needed to pay higher investment costs back by less annual costs.

Figure 7-5: Result figures.

Sensitivity analysis

Estimates about the future costs include uncertainty which affects life cycle costs and the final

results. One important way of use of the LCC tool is to support the selection of the solution that has

the lowest life cycle costs. Decision maker might also be interested in how the profitability of

different solutions can be influenced if the future costs are something else than in the first

estimates: for example, how much life cycle costs will increase if the average failure cost is 2000 €

instead of 1000 €.

To support risk based decision making a sensitivity analysis part is implemented into the LCC tool.

Sensitivity analysis is done by Monte Carlo simulation which is based on user defined distributions.

To help a user who is not familiar with statistical distributions, the LCC tool includes also a graphical

distribution window. The graphics tool shows the shape of the selected distribution (figure 7-6).

With this kind of a graph a user can more easily assess whether the distribution represents his/her

opinion of the variation of possible cost variable values.

The sensitivity analysis in the LCC tool provides opportunity to select Normal distribution or Weibull

distribution to all variables except for count variables. For count variables (e.g. number of

maintenance tasks/year) only Poisson distribution is available in this tool.


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Figure 7-6: Form for definition of statistical distributions used in Monte Carlo Simulation.

After the user has defined the statistical distribution to all cost variables he/she considers uncertain,

the tool calculates new life cycle and annual costs according to the cost variable values simulated

from the defined distributions. Those cost variable values, e.g. acquisition cost, that are considered

reliable do not necessarily need a simulation distribution. The same estimates given in the first data

input section are used in the calculations.

For example, in the distribution defined in figure 7-6, the cost of consequences/failure varies

between 3500 – 6500 € with probability of 99.7 %. In the first simulation run the cost of

consequences could be 4250 €, in the second run 6320 €, and so on. In the same way the values to

all variables with defined distributions are simulated. In each simulation run new result figures are

calculated and saved. After all simulation runs are done the expected variation of the life cycle costs

is presented in a graphic format (figure 7-7).

In addition to graphics, a table presents how many times each solution has been the best option. In

the case shown in figure 7-7, for example, 500 simulation runs were carried out and the Solution2

was better 351 times and Solution1 149 times. This supports the selection of Solution2 but there is a

good chance that in reality the Solution1 would actually be better. Decision maker needs now assess

more detailed variation of cost factors and also examine how well the compared solutions fulfil

strategic goals other than cost effectiveness.


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Figure 7-7: Example of the results of sensitivity analysis.

Note: A line shows variation from all simulation runs. Lower edge of a box is 25 percentile and upper

edge of a box is 75 percentile.

Restrictions of the LCC tool prototype

The tool has been developed to serve Elcon’s need to explain higher purchasing price with lower life

cycle costs and more sustainable solutions. Thus the goal has been very practical and directed the

development towards focusing on cost factors that have the greatest effect on life cycle costs.

LCC calculations are always case specific because the relevant cost factors vary case by case. Thus

development of a general LCC calculation tool, which includes the cost structure, is not possible.

Power supply system, whose objective is to ensure the supply of good quality electricity to various

industrial processes, was selected as a case system for this tool. As such the developed tool is

applicable only for that system.

In summary, the above examples of experiments/engagement with the industrial partners along

with the tools selection criteria established in D2.3 (presented in section 4), assisted in the further

design and development of the selected SBM process and toolset presented in section 3 and 5. This

prototype set will be used and tested with the industrial partners (depending on their time

availability) for identifying areas of improvement and usability (what worked, what didn’t work and

what needs changing). Hence, for this purpose the next section will establish aim and requirements

for the ‘use and test phase’.


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8 Use and test phase

The aim for the SBM process during this phase is to ensure that it captures requirements of business

model design process that delivers sustainability presented in section 3.2 – provide guidance in

investigating sustainable value for all stakeholders across the industrial network and provide design

options for business models and solutions that deliver sustainability. Moreover, testing the SBM

process with a firm that already has a sustainable business model to see if it would lead to similar

results could potentially assist in validation. This would align with the Riversimple use case, in

particular, but also receive validation from the CLAAS use cases, as suggested in D5.1 on the

preferences of each industrial partner in the WPs (Appendix 3).

The overall aim and requirements of the use and test phase for the tools are as follows:

Aims:

Ease of use - requires minimal support to use it

Comprehensible - clarity in definition and understanding

Improvement in the aesthetic presentation of the tools – visually compelling

Requirements:

The tools concur with the evaluation criteria for measuring capabilities and effectiveness

(section 4 and appendix 2) particularly on the following:

Captures network/system wide perspective (wider range of stakeholders, their

interactions and potential for value exchanges between them)

Considers environmental, social and economic sustainability for generating

sustainable value

Stimulates innovation and creativity (for example communication and interaction

within the organisation and with customers to generate innovative ideas)

The table below highlights specific testing aims for individual tools, particularly for the ones

developed in WP2:

Proposed Tools /Methods Work Package (WP) Improvement/refinement aims

System SWOT analysis SUSPRONET On the shelf This tool was adapted for sustainability so will be

used in its current form without further

development unless identified in the test

process

PESTLE/STEEPLED On the shelf No further development unless identified in the

test process

Sustainability continuum On the shelf This tool already focuses on sustainability so no

further development unless identified in the

test process


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Value mapping tool Developed in WP2 Identify multiple stakeholders across the

industrial network

Stimulate system thinking perspective on

value - various forms of value (destroyed,

missed and opportunities)

Movement of value through interactions

between identified stakeholders – minimise

negatives externalities and maximise

sustainable value

GRI and SASB guidelines On the shelf The guidelines are focused on sustainability and

will be used in its current form and structure

Scenario management tool Developed in WP3 by FIR

Sustainable business model

element archetypes typology

Developed in WP2 Stimulate creative thinking about alternative

business models that deliver sustainability

with a network perspective

Ensure that the typology captures all

examples of sustainable mechanisms and

solutions - reflect the latest state-of-practice

Sustainability impact calculation

tool

Developed in WP3 by FIR

Osterwalder and Pigneur business

model canvas

On the shelf An explicit consideration for sustainability –

could potentially involve adapting the canvas

based on its use

Life cycle cost estimation tool Developed in WP3 by VTT

Table 8-1: Use and test phase aims for tools

This section has attempted to give an initial overview of the method for the use and test phase, with

the objective to provide the SustainValue consortium and in particular the industrial partners with

an outline of the upcoming activities and aims. The aims and requirements for the SBM process and

toolset will evolve through further reflection and as the phase progresses.

9 Summary

The need for business model innovation to deliver sustainability through clarity in the design process

of a sustainable business model and a portfolio of tools and methods, has lead to the development

this deliverable. It is based on the results of D2.3, which initially proposed the SBM process and

design of new tools and methods and has integrated tools developed in WP3. Gaps highlighting, the

lack of tools in innovating and transforming the new sustainable value proposition, supporting the

design process and capable of being used by various firms (start-ups, SMEs and multinationals) were

identified and a missing step on the transformation of the new sustainable value proposition was

observed, during the review of D2.3. This report took the gaps and observations from the review of

the overall literature and practice (which included experiments with industrial partners, examples of


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which are presented in sub-section 7.1), in particular on sustainable business model design, into

account for further development and has resulted in table 8-1. The 5 step design process for

sustainable business modelling is as follows:

Step 1 – Purpose of the business

Step 2 – Identify potential stakeholders and select sustainability factors

Step 3 – Explore and develop new opportunities for sustainable value proposition

Step 4 – Concept generation and selection

Step 5 – Define/develop the value creation and delivery system and the value capture

mechanism

Specific tools that were added in this deliverable to address the gaps (mentioned above), are as

follows:

Value mapping tool (WP2)

Sustainable business model element archetypes typology (WP2)

Scenario management tool (WP3),

Sustainability impact calculation tool (WP3),

Life cycle cost estimation tool (WP3)

Sustainability accounting standards board guidelines - SASB (on the shelf)

The deliverable provides the SustainValue project with the first stage prototype sustainable business

modelling process and toolset. The proposed process and toolset will be used and tested with the

industrial partners. The use and test phase will be carried out in conjunction and support of WP5, for

further improvement and refinement of the design process and the supporting set of tools and

methods that will assist in the development of sustainable business model/s, before being available

to the external companies. The output is anticipated to assist manufacturing firms in the analysis

and design of sustainable business models towards helping the firms in changing the way they are

conceived and operated.


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Appendix 1: Contributors to D2.4

Comments received from the following partners:

Name Organization

Maria Holgado Granados POLIMI

Christian Grefrath FIR

Susanna Kunttu VTT

Marco Marchi POLIMI

Markku Reunanen VTT

Teuvo Uusitalo VTT

Dirk Wagner FIR

Appendix 2: Template for tool criteria evaluation (D2.3)


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Appendix 3: Map of WP2 and WP3 outputs aligned with Riversimple, CLAAS

and Elcon use cases


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Appendix 4: Introduction for Riversimple - presentation


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Appendix 5: Introduction for CLAAS - presentation

Documents

D2 - Sustain · PDF file7.1.1 SBM process, Value mapping tool and Sustainable business ... Revised version ... tool and life cycle cost estimation tool developed in Work Package 3