Papers in Brief (III): Laukkanen & Patala (2014): Analysing Barriers to Sustainable Business Model Innovations: Innovation Systems Approach

[Note: This is the third post of our new “Papers in Brief” series. Posts published in this series provide a special service as they explain the core ideas of chosen research papers in a nutshell.]

Papers in Brief (III) by Minttu Laukkanen

Laukkanen, M. & Patala, S. (2014): Analysing Barriers to Sustainable Business Model Innovations: Innovation Systems Approach, Int. Journal of Innovation Management, Vol. 18, No. 6, [21 pages] DOI: 10.1142/S1363919614400106

What are the key structural and cultural barriers to sustainable business model innovation, and how can the transition towards sustainable business models be promoted?

Although the question of how companies can transform their business models to become more sustainable is highly relevant for society and management, the adoption of corresponding strategies by firms has been slow. It is thus important to take a step beyond the business model of the individual firm and identify and analyse the structural and cultural driving forces and barriers which have an impact on sustainable business model innovation (SBMI).

The article “Analysing Barriers to Sustainable Business Model Innovations: Innovation Systems Approach” describes how societal transitions towards sustainable business models (SBMs) can be achieved. It assesses and categorises the key structural and cultural barriers to SBMI, and explains how to remove the existing barriers by strengthening the functions of innovation system (Table 1).

The following points are based on data from themed expert interviews and a two-round qualitative Argument Delphi study.

It is not about technology

Overall, the key barriers to the diffusion of SBMs can be structured following three categories: (1) Regulatory, (2) Market and financial, and (3) Behavioural and social. What is notable, the diffusion of SBMs is not seen as technologically focused issue. The experts think the technologies of today make sustainable business entirely possible. The experts also pointed out that it is not clear that consumer habits change towards sustainability through new technologies. Efficiency in material and energy use generates rebound-effects. It is not a question of new technologies; it is more like a question of attitudes, values, and regulation mechanisms. SBM innovations that focus on changing consumer behaviour and seek wider organisational and cultural changes in business practices are crucial.

Barriers

Functions

Regulatory Market and financial Behavioural and social
Entrepreneurial activities Long-term legal frameworks; Various encouraging regulative mechanisms Collaboration Adventurism; Visionary executives and game changers
Knowledge development Understanding of practical regulative mechanisms New partnerships; New indicators Education
Knowledge diffusion through networks Stakeholders involvement; Industrial norms Communication; Guidelines and instructions Education
Guidance of the search Structural changes in legislation and economy; Long-term legal support Incentives Enterprise culture
Market formation Stricter regulation; Specialized policy instruments Incentives Eco-labels; Eco-indicators
Resources mobilization Fair support for different technologies Collaboration; Ethical investments
Creation of legitimacy Lobbying Informing; Transparency Media attention

Table 1: Functions of innovation systems for overcoming barriers to SBMI

Voluntary actions are not enough

The crowd does not see sustainability attributes as dominant. Consumers or customers appreciate rather cheap prices than sustainability aspects, and firms answer these calls. Environmental and social problems are not seen, until middle of the crisis. Firms comply with regulation, but they do not take steps above it voluntarily. The experts refer to the dilemma of tragedy of commons by Garrett Hardin, and particularly emphasise the responsibility of the regulatory bodies.

We have created a “disposable” culture where it is more profitable to produce or buy cheap and short-lived products than offer or buy e.g. more sustainable repair services. Many industries are based on extremely fast cycles of fashion, and firms focus on short-term profit maximisation. Radical changes in consumer preferences are needed, but there is still a call for cheap products. Thus regulation that offer cost-benefits for customers and do not encourage overconsumption is needed. The experts in this study demand stricter legislative pressure and supportive economic incentives. The experts underline the importance of regulatory and financial mechanisms that lead to the introduction of new technological innovations, but also guidance to use old technologies in a sustainable manner. In order to diffuse SBMs at large scales, structural changes in legislation and economy are needed. However, drawing up suitable regulation is extremely challenging.

Collaborative models are needed

It is all about collaboration! These barriers can be overcome through the collaborative activities of governments, firms, and consumers. The diffusion of SBMs requires collaboration and involvement both at the society and individual level. Changes in consumer habits and legislation as well and new business models are prerequisites for a more sustainable society.

Entrepreneurs, incumbents as well as new entrants, have a vital role in the development of new SBMs. Visionary executives who are willing to change and challenge the status quo are needed to overcome the behavioural and social barriers to SBMI. Entrepreneurs should also be encouraged to collaborate and form partnerships with various stakeholders that have an interest in their activities. Policy-makers also need to support entrepreneurs with regulations that encourage potentially risky experimentation and pilot projects. Knowledge development is a vital function for advancing the understanding of sustainable business. For policy-makers, it is vital to understand the exact impacts of regulative mechanisms on firm activities. Firms need to be able to understand the meaning of sustainable value and its relation to sustained competitive advantage. In terms of removing the regulatory barriers of SBMI, political decision-making should aim to involve relevant stakeholders in decision-making and the preparation of policy instruments. Cooperation between governmental organisations and businesses can promote the formation of voluntary industrial norms in addition to regulations.

How will these things happen? Rohrbeck, Konnertz, and Knab (2013) have introduced the collaborative business modelling (CBM) approach for systemic and sustainable innovations where the overall goal is to unlock barriers of innovation. While the study by Rohrbeck et al. is focused on collaboration between multiple firms, we propose a CBM approach where firms as well as regulators, consumers, and possibly other stakeholders work together.

SBMI_post

Note

This study is part of the Dematerialization through new models for industrial networking research project where Lappeenranta University of Technology is one of the participating research institutes. For further details contact the SBM research team: minttu.laukkanen (at) lut.fi; janne.huiskonen (at) lut.fi; jouni.koivuniemi (at) lut.fi.

Literature

Rohrbeck, R.; Konnertz, L. & Knab, S. (2013): Collaborative business modelling for systemic and sustainability innovations, International Journal of Technology Management, Vol. 63, No. 1/2, pp. 4-23.
DOI | PDF (SSRN) | SlideShare

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