When it comes to sustainability, product innovation will only get you so far. It is time to rethink our business models, and we’ve identified 45 successful patterns within existing sustainable business model designs to help you get started.
Due to a broad consensus on the topic’s importance, sustainability is a top priority for managers today, but what remains now is understanding how to achieve it.
The pressure to demonstrate commitment to sustainability from regulators, employees, and customers adds a complex layer to the world of business. This new reality presents a unique moment for businesses. While many will rush to follow regulations and societal pressures, the real benefits will be realized by those companies that will experiment and innovate to turn sustainability challenges into opportunities. However, to do that, companies must go beyond the industrial-age business models and adopt more sustainable ones. We need a new place to look to solve these challenges, which is why my colleagues, Florian Lüdeke-Freund and Henning Breuer, and I wrote “Sustainable Business Model Design: 45 Patterns”.
Born out of many years of research and collaboration on the subject area, this book classifies and shares existing sustainable business models, illustrating how companies can design business models that align with sustainability objectives, meet stakeholder expectations, and drive long-term value creation.
To overcome some of these fundamental challenges and unlock the full potential of innovating for sustainability, companies need to rethink their business models too.
Making the case for a business model rethink
Let’s take a real-world example to help illustrate the challenges businesses face to capture the full value of sustainable innovation.
As you may have experienced, many Alpine huts offer slippers to their guests, as hiking boots are prohibited inside. Over the years, quickly worn-out sandals have been replaced with Crocs. Not only are Crocs made with an antibacterial foam that makes them easier to clean, but they are much longer-lasting. Great news all around, right? Commentators have speculated that one reason for Crocs’ near-bankruptcy in 2009 may have been that their product’s durability led to market saturation for some customer segments.
Herein lies a pretty common dilemma for businesses. From a sustainability perspective, products should last as long as possible. From an economic standpoint, however, companies need continuous revenue. Simply, making products last longer is not always a viable strategy. Companies need novel ways of capturing value in order to offer more sustainable, enduring products. What to do?
This example illustrates a very fundamental fact about sustainability. As companies push the sustainability envelope they encounter new challenges. These issues are recurrent because they are tied to how markets function. They manifest across different industries, technologies, and geographical markets. They come again and again.
There is a critical implication here for leaders and managers interested in sustainability. Innovating products, services and processes is a useful, and essential step, but often insufficient. To overcome some of these fundamental challenges and unlock the full potential of innovating for sustainability, companies need to rethink their business models too. They need to engage in sustainable business model design (SBMD).
Identifying the patterns for sustainable business models
My co-authors and I believe that looking at successful patterns, an approach outlined in our book, can help design more sustainable business models. So, what is a pattern?
A pattern encapsulates knowledge in the form of a general rule: If you want X, do Y. Therefore, a pattern offers knowledge for action and demonstrates how to design solutions to enduring sustainability challenges across organisations and industries. Our research has identified 45 patterns across 11 groups, from pricing and revenue patterns to financing, closing-the-loop, eco-design, giving, and access provision. We have mapped these patterns in a sustainability triangle that considers social, ecological, and economic value creation.
11 Pattern Groups
- Pricing & Revenue
- Financing
- Ecodesign
- Closing-the-loop
- Supply Chain
- Giving
- Access Provision
- Social Mission
- Service & Performance
- Cooperative
- Community Platform
For example, products that become unwanted because they are obsolete or no longer fashionable are often simply thrown away. How could we limit this waste? The pattern of Reusing offers a solution. Which is to extend the life of an unwanted item by selling, giving it away for free, extending a single use to multiple uses (e.g., plastic shopping bags) or repurposing it (e.g., old furniture into design objects). This is what Swiss-based retailer Freitag does. It makes more than 70 products, such as bags, smartphone covers, and backpacks, from used truck tarps.
Putting a sustainable business model pattern into action
Returning to our example, Croc’s problem could be resolved, among other possible solutions discussed in our book, thanks to the Green Razor and Blade pattern, a variation of a blueprint popularised by companies such as Gillette or Nespresso. This pattern involves creating a modular offering that combines a durable product with shorter-lived consumables, allowing the company to capture value through a stable and scalable revenue stream while marketing a long-lasting product. The consumables themselves are designed to be repaired, refurbished, remanufactured, or recycled.
Epson’s EcoTank printer range demonstrates this pattern in action, with its refillable ink cartridges and recyclable printers. While these printers (the ‘razor’) come with a hefty price tag, their ink tanks (the ‘blade’) are more convenient and longer-lasting than regular ink cartridges and also save costs, thanks to a higher page yield. This pattern applies to any offer designed with a built-to-last core product and shorter-lived consumables or other modules that provide additional revenue streams. It can be applied in many other instances.
Pushed to the extreme, the idea behind the Green Razors and Blade involves combining a long-lasting product with a service, and ensuring ongoing revenues with the latter, as recently done by WashPass from Haier. Their new pay-per-wash washing machines combine several different patterns into one innovative offering.
Patterns are generalised solutions, so they must be adapted to the realities and circumstances of the firm.
Adapting and combining patterns for sustainable innovation
Nevertheless, patterns are generalised solutions, so they must be adapted to the realities and circumstances of the firm. Their applicability and effectiveness are influenced by various boundaries and contextual conditions. Patterns can be combined, though, in diverse ways to boost innovation.
The fundamental principle remains relatively straightforward: patterns offer an excellent source of inspiration to raise awareness of the recurring challenges inherent in sustainable innovation and to discover potential solutions. It is essential to approach pattern utilisation with an entrepreneurial mindset and curiosity. By understanding the sustainability challenges that companies typically run into, and examining how innovative companies and visionary entrepreneurs have addressed them through business model innovation, we can amplify the sustainability impact of business.
About the book:
Sustainable Business Model Design presents 45 patterns for the design of next-generation business models for sustainability. What sustainable business models do we already have? How do innovative companies and visionary entrepreneurs implement them? What sustainability challenges have they solved and what innovation opportunities have they embraced? Sustainable Business Model Design provides answers to questions such as these. Discover the sustainability potential of patterns such as Differential Pricing, Customer Financing, Social Freemium, Subscription, Crowdfunding, or Green Razor and Blade.
About the authors:
Florian Lüdeke-Freund holds the Chair for Corporate Sustainability at ESCP Business School Berlin, is the European Academic Director of ESCP’s Specialised Master in Sustainability Entrepreneurship & Innovation, and Co-Founder of ESCP’s STAR Centre for Sustainability Transformation & Applied Research.
Henning Breuer is Professor for Business Psychology at HMKW Berlin and founder of Berlin-based innovation consultancy UXBerlin. He works with large companies, public organisations, and start-ups, and provides consulting on innovation management, sustainable business models, future scenarios, and ethnography.
Lorenzo Massa consults, speaks, researches, and teaches in the fields of strategy, innovation, and sustainability. He is the Managing Director of the Business Design Lab and Professor for Strategy, Innovation and Sustainability at Aalborg University Business School. Lorenzo is member of the World Economic Forum’s Expert Network for Innovation and adjunct professor for executive education at École Polytechnique Fédérale de Lausanne (EPFL), the International Academy of Sport Science and Technology (AISTS), Frankfurt School of Finance and Management as well as Bologna Business School (BBS). Lorenzo sits on the advisory board of different for-profit and nonprofit organizations and is a trusted strategy, innovation, and sustainability advisor to executives in companies across many industries.