Utilizing the Business Model Canvas to Enable Sustainability Measurement on the Business Model Level

by Lara Obst

This posting is based on a master thesis that was submitted by Lara Obst in October 2015 in order to receive the M.Sc. degree of the Double Master Program “Innovation Management & Entrepreneurship” from the Technical University of Berlin and the University of Twente.

Utilizing the Business Model Canvas to Enable
Sustainability Measurement
on the Business Model Level.
An Indicator Framework Supplementing the Business Model Canvas.”

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Summary

Applying a theory-based exploration, this thesis first reveals the desired organizational performance towards “strong” sustainability. Therefore, it investigates the emerging, trans-disciplinary research field around sustainability business models. It was found that the business model represents the core logic of a company, but currently lacks in its most popular conceptual model, the Business Model Canvas, sustainability issues. “Strong” sustainability is thereby defined as a balanced triangle of non-substitutable economic, social and environmental values. Thus, the proposition of a balanced set of sustainability performance indicators (SPIs), measuring all three sustainability dimensions, is developed.

Secondly, in an empiric exploration, these SPIs, used by different sustainability reporting guidelines, are further investigated and altered together with 20 experts in three Delphi panel rounds. As a result, a SPI framework, supplementing the Business Model Canvas, is built. The framework depicts and visualizes the current (with lagging indicators) as well as potential (with leading indicators) sustainability performance of companies. Hence it enables the measurement of sustainability performance on the business model level and not only on the product or service level, as conventional corporate sustainability measurement tools do.

Context and Challenge

All-encompassing system-level changes such as climate change, resource use and inequality lead to an increasing pressure on businesses to operate in a sustainable manner (Bocken et al., 2013). However, the Brundtland report’s appeal for more sustainability in businesses does not seem to be enough to foster an economic shift towards a global sustainable development. Instead, the classic organizational focus on financial success, rather than on the integration of economic, social and environmental performance, has caused well known financial, social and environmental adversities (IPCC, 2014; Schaltegger & Burritt, 2005; Upward & Jones, 2015).

The current imbalance between the three dimensions of sustainability – society, economy and environment (Elkington, 1999) – is in a way depicted by the absence of social and environmental dimensions in the recently most popular tool for developing and testing business models (Upward, 2015), namely the Business Model Canvas (Osterwalder et al., 2010). This tool focuses on profit first, but neglects value added to society and environment (Upwards & Jones, 2016). Hence a systematic approach for the creation of sustainability business models, integrating the three dimensions of sustainability, is missing (Bocken et al., 2014; Boons & Lüdeke-Freund, 2013). Moreover, conventional corporate sustainability tools miss to measure sustainability performance on a company-embracing business model level, along the nine business model elements and not only on the product and service level or along a company’s business units (Bonini & Görner, 2011; Figge & Hahn, 2004; Hall et al., 2010; Lüdeke-Freund, 2013; Upward & Jones, 2016).

Thus, there is no tool for companies that strive to change the way they do business and aim to embed sustainability not only into their key value creation levers, but into their DNA, hence their business models (Lüdeke-Freund, 2013; Accenture & UN Global Compact, 2010; IFAC, 2011).

Research Approach

The SPI Framework is developed as practical management tool that integrates the knowledge of sustainability business models into the general management of companies, using standardized key performance indicators (KPIs) as well as individual performance indicators (PIs) (Kaplan & Norton, 1996). This comprehensive indicator set enables the measurement of sustainability performance on the business models level (OECD, 2004; Schaltegger & Wagner, 2006; Accenture & UN Global Compact, 2010), including all nine elements of the Business Model Canvas. Hence companies can use the framework to identify, measure and evaluate their sustainability performance.

Regarding the challenge of how companies can be more sustainable, it is advised to investigate how the use of business models as a management tool can be guided, including the “development of performance measurement systems and instruments that help in qualifying and quantifying companies’ sustainability performance on the business model level” (Lüdeke-Freund, 2013, p. 36). Building on this request, the following research question (RQ) and two sub research questions (SRQs) were developed.

  • RQ: What are the relevant indicators essential to measure sustainability performance on the business model level?
    • SRQ1: Which indicators are discussed as most relevant in the sustainability-oriented research field connected to sustainability business models?
    • SRQ2: Which sustainability indicators do experts from practice use to assess the sustainability performance of businesses?

In order to investigate the RQ and the SRQs, various methods were used: literature review, data collection in a database, expert interviews and framework development. The questions are answered in different chapters and lead from theory (SRQ1 in chapter 1: concept of “business model” and “sustainability”) to practice (SRQ 2 in chapter 2: framework with indicators from practice) and finally to the framework development and evaluation (RQ in chapter 3: results).

Result: A Business Model SPI Framework

The Delphi panel (Dalkey et al., 1969; Rand Corporation, 2015) identified 15 standardized key SPIs and 23 additional PIs, which can be applied to fit individual business models. In order to build the SPI framework, only the key SPIs, including three social (SO), four environmental (EN), three economic (EC) and five standard disclosure (SD) indictors, were mapped and visualized in the Business Model Canvas, as shown in Figure 1.

SBM_SPI1

Figure 1: SPI framework with 15 Key SPIs.

This way, a SPI framework was created that contains the following indicators in each Business Model element (Table 1).

SBM_SPI2

Table 1: Key SPIs (code and short name) mapped to the BMC elements.

Each key SPI indicates, in one or more business model elements, specific impacts, actions or efforts of an organization that are necessary to measure the total sustainability performance on the business model level. The four most relevant key SPIs are shown explanatory in the following.

SO5 – “safety and security” measures in the business model element “key resources”, whether an organization has systems and policies in place to monitor, evaluate and ensure worker safety, including the guarantee for social security protection.

EN7 – “reputation and transparency” uncovers in the three business model elements “value proposition”, “customer relationships” and “channels”, the activities taken to transparently disclose the company’s environmental impact.

EC3 – “SROI” asks to calculate for the “value proposition” and the “revenue” business model element the SROI ratio.

SD5 – “value creation statement” is essential, in order to disclose in the “value proposition” business model element, the overall value creation process of the company, with regard to where the organization creates, retains or destroys value in economic, social and environmental terms.

In addition to the 15 Key SPIs, it is advised to use the PI set ancillary, in order to comprehensively measure an organization’s individual sustainability performance, fitting to its specific business model.

Contribution

The developed SPI framework enables practitioners – especially small and medium sized enterprises (SMEs) as well as start-ups – to identify and measure their sustainability performance in the early stages. In later stages, it enables them to seamlessly report their sustainability performance, as the SPI framework is based on the Global Reporting Initiative standard and the Impact Reporting and Investment Standard (IRIS) metric set.

Moreover, stakeholders, such as the local community, the government or investors, can use the framework to understand and compare the sustainability impact of companies. In addition, as the framework supplements the Business Model Canvas and is compatible with the (Sustainability) Balanced Scorecard (Figge et al., 2004; Kaplan and Norton, 1992), it facilitates a fluent transfer between strategy and business model. Hence it supports the easy integration of sustainability strategies into the core logic of companies, its DNA, and thus into the general management objectives.

Literature

Accenture; UN Global Compact (2010): The UN Global Compact-Accenture CEO Study on Sustainability. Available online at http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-UN-Global-Compact-CEO-Study-Sustainability.pdf, checked on 6/20/2015.

Bocken, N.M.P.; Short, S.W.; Rana, P.; Evans, S. (2013): A value mapping tool for sustainable business modelling. In Corporate Governance 13 (5), pp. 482–497, checked on 4/2/2015.

Bocken, N.M.P.; Short, S.W.; Rana, P.; Evans, S. (2014): A literature and practice review to develop sustainable business model archetypes. In Journal of Cleaner Production 65, pp. 42–56. Available online at http://www.sciencedirect.com/science/article/pii/S0959652613008032, checked on 6/20/2015.

Bonini, S.; Görner, S. (2011): The business of sustainability: McKinsey Global Survey results. Edited by McKinsey. Available online at http://www.mckinsey.com/insights/energy_resources_materials/the_business_of_sustainability_mckinsey_global_survey_results, checked on 3/16/2015.

Boons, F.; Lüdeke-Freund, F. (2013): Business models for sustainable innovation: state-of-the-art and steps towards a research agenda. In Journal of Cleaner Production (45), pp. 9–19. Available online at http://www.researchgate.net/profile/Florian_Luedeke-Freund/publication/256023864_Business_Models_for_Sustainable_Innovation_State_of_the_Art_and_Steps_Towards_a_Research_Agenda/links/54f052430cf2432ba65a176f.pdf, checked on 6/20/2015.

Dalkey, N. C.; Brown, B. B.; Cochran, S. (1969): The Delphi method: An experimental study of group opinion. With assistance of Rand Corporation. Santa Monica. Available online at http://www.rand.org/content/dam/rand/pubs/research_memoranda/2005/RM5888.pdf, checked on 7/16/2015.

Elkington, John (1999): Cannibals with forks. The triple bottom line of 21st century business. New Ed (1. September 1999). Oxford: Capstone.

Figge, Frank; Hahn, Tobias (2004): Sustainable Value Added—measuring corporate contributions to sustainability beyond eco-efficiency. In Ecological Economics 48 (2), pp. 173–187.

Figge, F.; Hahn, T.; Schaltegger, S.; Wagner, M. (2001): Sustainability Balanced Scorecard. Wertorientiertes Nachhaltigkeitsmanagement mit der Balanced Scorecard. Center for Sustainability Management (CSM). Lüneburg.

Folmer, H.; Tietenberg, T. (Eds.) (2005): The International Yearbook of Environmental and Resource Economics 2005/2006. A Survey of Current Issues: Edward Elgar.

Hall, Jeremy K.; Daneke, Gregory A.; Lenox, Michael J. (2010): Sustainable development and entrepreneurship: Past contributions and future directions. In Journal of Business Venturing 25, pp. 439–448.

International Federation of Accountants (IFAC) (2011): Sustainability Framework 2.0. Professional Accountants as Integrators. Available online at http://www.accountability.org/images/content/4/3/435.pdf, checked on 4/13/2015.

International Panel of Climate Change (IPCC) (2014): CLIMATE CHANGE 2014. Synthesis Report. Summary for Policymakers. Edited by The core writer team, Rajendra K. Pachauri, Leo Meyer. Available online at http://www.ipcc.ch/pdf/assessment-report/ar5/syr/SYR_AR5_SPMcorr2.pdf, checked on 11/2/2014.

Kaplan, Robert S.; Norton, David P. (1992): The Balanced Scorecard: Measures that Drive Performance. In Harvard Business Review 70 (1), pp. 71–79, checked on 5/15/2015.

Kaplan, Robert S.; Norton, David P. (1996): The balanced scorecard. Translating strategy into action. Boston: Harvard Business Review Press.

Lüdeke-Freund, F. (2013): Business Models for Sustainability Innovation: Conceptual Foundations and the Case of Solar Energy. The business models for sustainability innovation framework. PhD Thesis, Lüneburg. Leuphana University. Available online at http://opus.uni-lueneburg.de/opus/volltexte/2014/14286, checked on 3/19/2015.

Organization for Economic Co-Operation and Development (OECD) (Ed.) (2004): Measuring sustainable development. Integrated economic, environmental and social frameworks. Statistics. Paris: OECD.

Osterwalder, Alexander; Pigneur, Yves; Clark, Tim (2010): Business model generation. A handbook for visionaries, game changers, and challengers. Hoboken, NJ: Wiley.

Rand Corporation (2015): Delphi Method. Available online at http://www.rand.org/topics/delphi-method.html, checked on 6/20/2015.

Schaltegger, S.; Burritt, R. (2005): 5. Corporate sustainability. In H. Folmer, T. Tietenberg (Eds.): The International Yearbook of Environmental and Resource Economics 2005/2006. A Survey of Current Issues: Edward Elgar, pp. 185–222.

Schaltegger, S.; Wagner, M. (2006): Integrative management of sustainability performance, measurement and reporting. In International Journal Accounting, Auditing and Performance Evaluation 3 (1), pp. 1–19. Available online at http://www.inderscienceonline.com/doi/abs/10.1504/IJAAPE.2006.010098, checked on 4/3/2015.

Upward, Antony (2015): The Strongly Sustainable Business Model Ontology and Canvas – A Briefing v2.3. Prezi. SSBMG. Available online at http://prezi.com/8hdu0vfbdfhd/the-strongly-sustainable-business-model-ontology-and-canvas-a-briefing-v23/, checked on 3/13/2015.

Upward, A.; Jones, P. (2016): An Ontology for Strongly Sustainable Business Models: Defining an Enterprise Framework Compatible With Natural and Social Science. In Organization & Environment 29(1), pp. 97-123, http://oae.sagepub.com/content/29/1/97.

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