Working Definitions of “Sustainable Business Model” & “Business Model for Sustainability”

by Florian Lüdeke-Freund

Research on “sustainable business models (SBM)” and “business models for sustainability (BMfS)” is without doubt gaining momentum and becoming increasingly popular. Just have a look at our exploding open reference list or current conference topics. However, one of the many difficult and yet unanswered questions in this area is:

How to define a “sustainable business model” or “business model for sustainability” in general?*

Such a definition would be an important ingredient for further conceptual and theoretical work. To stimulate discussion, this blog post summarises some general definitions which were developed in the last few years – feedback and further suggestions welcome!

Below you find a list of five working definitions that might guide the search for, and development of, SBMs and BMfS. They take different theoretical starting points (such as re-defining customer value or connecting to the business case for sustainability) and emphasise different business model functions (such as creating competitive advantage or supporting different kinds of innovation).

This list is neither complete nor does it provide final or ultimate definitions. It should rather be seen as a collection of snapshots of an ongoing research process and an impulse for your own work in this field.

(*A question directly related is: What is the difference between an SBM and a BMfS? Is this all just words, or does it point to some profound differences? This might be explored in another blog post …)

 


 

1. Working Definition (2009) – BMfS to overcome the public/private benefit discrepancy

“A business model for sustainability is the activity system of a firm which allocates resources and coordinates activities in a value creation process which overcomes the public/private benefit discrepancy. That is, a business model for sustainability is the structural template of a business logic which creates the business case for sustainability. This can be achieved by

  • extending value propositions to integrate public and private benefits (product/value proposition pillar),
  • making customers involved and responsible partners in value creation processes (customer interface pillar),
  • taking advantage of partnerships which enhance resources and activities (infrastructure pillar),
  • evaluating combined measures like Environmental Shareholder Value and Environ-mental/Social Business Model Value (financial aspects pillar), and
  • dedicating resources and activities to secure free, legitimate and legal behaviour and to explore currently neglected opportunities in non-market spheres (non-market pillar).”

Comment

  • Main purpose defined as “overcoming the public/private benefit discrepancy”, i.e. co-creating societal and business value through business cases for sustainability
  • Based on Osterwalder’s (2004) earlier BMO approach
  • Tries to extend the basic four-pillar-concept by adding a fifth “non-market” pillar according to the Sustainability Balanced Scorecard concept (Schaltegger & Dyllick, 2002)
  • Merges Amit and Zott’s (2010) activity system with Osterwalder’s structural template view

Source

Lüdeke-Freund, F. (2009): Business Model Concepts in Corporate Sustainability Contexts: From Rhetoric to a Generic Template for “Business Models for Sustainability”. Lüneburg: Centre for Sustainability Management.
Download from SSRN

 


 

2. Working Definition (2010) – SBM to create extended customer value

“A business model that creates competitive advantage through superior customer value and contributes to a sustainable development of the company and society can be interpreted as a sustainable business model … Since customer value is the strategic nexus of any business model, sustainable business models are crucial for creating extended customer value for individual customers and society, i.e. private and public benefits.”

Comment

  • Main purpose defined as “creating extended customer value”, i.e. co-creating societal and business value through an extended approach to customer value – for the focal firm itself, for its customers in a narrow sense, and for society at large (incl. stakeholders who are non-customers)
  • Based on conceptions of customer value and public customer value (Meynhardt, 2009; Meynhardt & Stock, 2009)
  • Tries to broaden the common value creation function of business models

Source

Lüdeke-Freund, F. (2010): Towards a Conceptual Framework of Business Models for Sustainability, in: Wever, R.; Quist, J.; Tukker, A.; Woudstra, J.; Boons, F. & Beute, N. (Eds.): Knowledge Collaboration and Learning for Sustainable Innovation, ERSCP-EMSU Conference, 25-29 October 2010, Delft, The Netherlands. Delft: Delft University of Technology.
Download from SSRN

 


 

3. Working Definition (2012) – BMfS to create business cases for sustainability

“Based on the understanding of a business case for sustainability, a business model for sustainability can be defined as supporting voluntary, or mainly voluntary, activities which solve or moderate social and/or environmental problems. By doing so, it creates positive business effects which can be measured or at least argued for. A business model for sustainability is actively managed in order to create customer and social value by integrating social, environmental, and business activities.” 

Comment

  • Main purpose defined as “supporting activities which solve or moderate social and/or environmental problems”, i.e. co-create societal and business value through the support of (mainly) voluntary, measurable, and deliberate entrepreneurial activities aiming for business cases for sustainability
  • Based on the business case for sustainability concept (BCfS) (Schaltegger & Wagner, 2006, 2011)
  • Tries to make a theory-based and direct connection between the BCfS, corporate sustainability strategies, and business model innovation

Source

Schaltegger, S.; Lüdeke-Freund, F. & Hansen, E. (2012): Business Cases for Sustainability: The Role of Business Model Innovation for Corporate Sustainability, Int. Journal of Innovation and Sustainable Development, Vol. 6, No. 2, pp. 95-119.
DOI | PDF (SSRN)

 


 

4. Working Definition (2013) – SBM for technological, organisational, and social innovation

“… sustainable business models with a focus on technological innovation are market devices that overcome internal and external barriers of marketing clean technologies; of significance is the business model’s ability to create a fit between technology characteristics and (new) commercialization approaches that both can succeed on given and new markets.

Business model change on the organizational level is about the implementation of alternative paradigms other than the neoclassical economic worldview that shape the culture, structure and routines of organizations and thus change the way of doing business towards sustainable development; a sustainable business model is the aggregate of these diverse organizational aspects.

… sustainable business models enable social entrepreneurs to create social value and maximize social profit; of significance is the business models’ ability to act as market device that helps in creating and further developing markets for innovations with a social purpose.”

Comment

  • Main purpose defined as supporting different kinds of sustainability innovation (technological, organisational, and social); differentiating these innovation functions allows for a more encompassing view on sustainable business models
  • Theoretically inspired, inter alia, by Doganova and Eyquem-Renault’s (2009) definition of what business models do, and Chesbrough and Rosenbloom’s (2002) definition of the business model as a mediating, value-creating device
  • Tries to create a bridge between the mainstream business model discourse and the field of sustainability innovation research; proposes general topics for a possible research agenda

Source

Boons, F. & Lüdeke-Freund, F. (2013): Business Models for Sustainable Innovation: State-of-the-Art and Steps towards a Research Agenda, Journal of Cleaner Production, Vol. 45, pp. 9-19.
DOI | PDF (SSRN)

 


 

5. Working Definition (2014) – SBM to create positive value for all stakeholders

“[A] sustainable business model can be defined as a business model that creates, delivers, and captures value for all its stakeholders without depleting the natural, economic, and social capital it relies on.”

Comment

  • Main purpose defined as “creating, delivering, and capturing value for all business model stakeholders while acknowleding natural and social/societal limitations”, i.e. co-create societal and business value through considering any effect on any possible stakeholder, while the involved (external) systems’ limitations are considered
  • Inspired by stakeholder theory and a focus on critical capitals as in ecological economics (cf. Ehrenfeld & Hoffman, 2013; Upward, 2013)
  • Tries to connect the value creation function of business models with the idea of (strongly) sustainable capitals management (cf. Upward, 2013)

Source

Breuer, H. & Lüdeke-Freund, F. (2014): Normative Innovation for Sustainable Business Models in Value Networks, in: Huizingh, K.; Conn, S.; Torkkeli, M. & Bitran, I. (Eds.): The Proceedings of XXV ISPIM Conference – Innovation for Sustainable Economy and Society, 8-11 June 2014, Dublin, Ireland.
PDF (SSRN) | SlideShare | Link (Conference)

 


 

References

Chesbrough, H. & Rosenbloom, R. (2002): The role of the business model in capturing value from innovation: evidence from Xerox Corporation’s technology spin-off companies, Industrial & Corporate Change, Vol. 11, No. 3, 529–555.

Doganova, L. & Eyquem-Renault, M. (2009): What do business models do? Innovation devices in technology entrepreneurship, Research Policy, Vol. 38, No. 10, 1559–1570.

Ehrenfeld, J. & Hoffman, A. (2013): Flourishing: A Frank Conversation About Sustainability. Sheffield: Greenleaf Publishing.

Osterwalder, A. (2004): The business model ontology: A proposition in a design science approach. PhD Thesis. Lausanne: Universite de Lausanne.

Meynhardt, T. (2009). Public value inside: what is public value creation? International Journal of Public Administration, 32(3/4), 192–219.

Meynhardt, T. & Stock, R. (2009). Customer Value und Public Value. Der Kundennutzen im Bauch der Gesellschaft [Customer value for the society]. Marketing Review St. Gallen, (01-2009), 53–57.

Schaltegger, S. & Dyllick, T. (Eds.) (2002): Nachhaltig managen mit der Balanced Scorecard. Konzept und Fallstudien. Wiesbaden: Gabler.

Zott, C. & Amit, R. (2010): Business model design: an activity system perspective, Long Range Planning, Vol. 43, No. 2/3, 216–226.

Schaltegger, S. & Wagner, M. (2006): Managing and measuring the business case for sustainability. Capturing the relationship between sustainability performance, business competitiveness and economic performance, in: Schaltegger, S. & Wagner, M. (Eds.): Managing the business case for sustainability. Sheffield: Greenleaf Publishing, 1–27.

Schaltegger, S. & Wagner, M. (2011): Sustainable entrepreneurship and sustainability innovation: categories and interactions, Business Strategy and the Environment, Vol. 20, No. 4, 222–237.

Upward, A. (2013): Towards an Ontology and Canvas for Strongly Sustainable Business Models: A Systemic Design Science Exploration. Masters of Environmental Studies / Graduate Diploma in Business + Environment. Toronto: York University.

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One comment

  1. According to my understanding the difference is below, but it would be great to get feedback from native speakers.

    SBM- the aim is the sustainability of the particular organization, i.e. the duration of existence of the company that is employing this BM. It does not need to be related to environmental aspects. Similarly as you can say “sustainable competitive advantage”.

    BMfS- the aim is the sustainability of society (locally, nationally, or globally). This includes the economic, environmental and social aspects. Scalability and replicability are crucial here. If this is achieved, then from the global perspective it does not matter if the organization that for the first time used it, eventually stops existing.

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