Green Business Model Innovation - Conceptualisation, Next Practice and Policy

Green Business Model Innovation - Conceptualisation, Next Practice and Policy
NORDIC INNOVATION REPORT 2012:12 // OCTOBER 2012




Green Business Model Innovation
Conceptualisation, Next Practice and Policy
Green Business Model Innovation - Conceptualisation, Next Practice and Policy
Green Business Model Innovation - Conceptualisation, Next Practice and Policy
Green Business Model Innovation
Conceptualisation, Next Practice and Policy




        Authors:
        Tanja Bisgaard, Kristian Henriksen, Markus Bjerre




        October 2012



        Nordic Innovation Publication 2012:12
Green Business Model Innovation
Conceptualisation, Next Practice and Policy

Nordic Innovation Publication 2012:12
© Nordic Innovation, Oslo 2012

ISBN 978-82-8277-032-3 (Print)
ISBN 978-82-8277-033-0
(URL: http://www.nordicinnovation.org/publications)



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Project participants



Denmark                               Finland
Ministry of Business and Growth       TEKES
Kristian Henriksen                    Tuomo Suortti
Special advisor and project owner     Senior Technology Advisor

Markus Bjerre
Head of section                       Iceland
                                      Innovation Centre Iceland
Danish Business Authority             Karl Friðriksson
Jakob Øster                           Managing Director
Head of section
                                      Norway
Alexandra-Maria Almasi
                                      Innovation Norway
Research Assistant
                                      Tor Mühlbradt
                                      Special Advisor
Emil Damgaard Grann
Research Assistant
                                      Sweden
Novitas Innovation on behalf of       VINNOVA
Danish Business Authority             Lars Wärngård
Tanja Bisgaard                        Director Manufacturing and Working Life
Project manager                       Division

Hoegenhaven Consulting on behalf of   Ulf Holmgren
Danish Business Authority             Head of Manufacturing and Working Life
Casper Høgenhaven                     Division
Consultant
                                      Linköping University on behalf of
COWI on behalf of                     VINNOVA
Danish Business Authority             Mattias Lindahl
Henrik Sand                           Associate professor
Project Manager
6   GREEN BUSINESS MODEL INNOVATION — CONCEPTUALISATION, NEXT PRACTICE AND POLICY




    Executive summary

    There are many terms in the public and academic debate about how companies green
    their business and how they are categorised as green companies. The concepts of the
    green economy, green growth, and eco-industries all emphasise sustainable use of
    resources, so that future generations may not experience resource scarcities or be
    exposed to environmental risks and thus be worse off than previous generations.


    A company’s business model can be analysed in different ways and many different
    tools have been developed to analyse business model concepts. The business model
    canvas1 gives any company a simple and intuitive tool to describe and think through the
    different elements of its business models in order to systematically challenge the way it
    does business and thereby be able to create new strategic alternatives. The canvas tool
    consists of nine basic building blocks covering four main areas of a business: customers,
    offering, infrastructure, and financial viability. This gives the company a simple and
    intuitive map to understand its business models, but also a way to challenge and find
    successful alternatives of doing business. In the same time, companies can look at other
    companies’ business models to be inspired to do similar changes to their own model
    or to design a completely new business model. Business model innovation is basically
    about improving the building blocks of the business model.


    Business models often change gradually and do not necessarily imply fundamental
    revisiting of value propositions, but of course the changes could also focus on improving
    production processes or reconfiguring organizational structures. Usually the changes
    taking place in a business model is represented by one of the following forms:


    •   Modification through small and progressive adjustments;


    •   Re-design materialized in significant changes;


    •   Alternative building blocks, which can fulfill the same function or operate as
        substitutes for the original ones;


    •   Creation and introduction of entirely new and innovative building blocks.
    1        Osterwalder&Pigneur, 2010
EXECUTIVE SUMMARY     7




Therefore Green Business Model Innovation is when a business changes part(s) of its
business model and thereby captures economic value as well as reduces the ecological
footprint in a life-cycle perspective.


Generally, it can be said that the more parts of a business model which are changed and
have a green effect, and the more profoundly a green change is taking place within the
individual parts of the business model – going from modification, re-design, alternatives,
to creation – the greener the business model innovation is.


While new ways of talking about sustainability are being shaped, companies are
increasingly recognising that it can be a source of innovation that can help them
become more competitive by either developing new products and services based on
new technology (i.e. greentech and cleantech) or by making changes to their business
models. These changes are here referred to as companies’ green business model
innovation. Companies might innovate by substituting to greener inputs, reusing or
recycling resources, offering their product as a service function while continuing to have
ownership of the products, or by developing greener products, services and processes.



Types of Green Business Model Innovation

We structure the greening of businesses with respect to two main models: the incentive
models and the life-cycle models. The incentive models include functional sales or
product service systems and performance-based models which may have green effects
such as Energy Saving Companies (ESCOs), Water Saving Companies (WASCO), Material
Saving Companies (MASCO), Chemical Management Systems (CMS), and Design, Build,
Finance, Operate (DBFO) etc. The life-cycle models include cradle to cradle, take back
management, green supply chain management, and industrial symbiosis.


In this study 41 companies were interviewed and on the basis of the interviews business
case studies were completed. The sample is small and our analysis is therefore based
on a limited amount of companies, which cannot be considered representative for the
group of companies working with green business model innovation. However, the
knowledge from the business cases can give us a first impression of the characteristics
of companies working with green business model innovation and next practice.



Drivers of Green Business Model Innovation

One of the most important drivers for companies to initiate green business model
innovation is increased consumer awareness towards sustainability. All of the companies
use the green agenda as a driver for their green business model innovation – irrespective
8   GREEN BUSINESS MODEL INNOVATION — CONCEPTUALISATION, NEXT PRACTICE AND POLICY




    of the size or sector of the company. Another important driver is the opportunity
    for companies to differentiate their products and services and create a competitive
    advantage by being greener and more sustainable than their competitors.


    A driver of a different nature is related to increasing costs of resources and supply risk,
    which has forced companies to consider alternative resources for their production. The
    business case companies have set forth processes to cut costs and create new revenue
    streams by changing or expanding their focus on how to source from surplus materials,
    design recyclable products, add services to products or create take-back mechanisms for
    reuse of products or components.



    Barriers to Green Business Model Innovation

    Some of the most important barriers encountered among companies changing their
    business models into greener ones, is a lack of knowledge and skills throughout the entire
    value chain. In the development and production phases, employees lack knowledge of
    what substances are contained in the materials they use, alternative materials to use
    and how to use new materials when developing and designing new products. Some
    customers are willing to buy more sustainable products and services, but there is still a
    large group of customer that do not have enough knowledge about what sustainability
    is and who are too conservative to change their buying habits where price is the main
    purchasing incentive.


    Another great barrier for companies wanting to transform their business models is the
    large costs of new machinery and new materials or changes that must be implemented
    in new product development and design. Furthermore, recycling and reusing materials
    require infrastructure systems, which also are costly to develop and implement.



    Results of Green Business Model Innovation

    Many companies’ first attempts at green business model innovation are aimed at
    a limited number of product lines or initial attempts at selling services in a new way.
    While testing the different ways of doing green business model innovation focus is not
    initially placed on how to measure the outcomes. However, all of the companies see
    green business model innovation as a way to create positive environmental impacts,
    more innovation and financial benefit. Among the companies we interviewed, some
    of them can document specific financial results based on thorough calculations, some
    have made rough estimates, while others reply that they would not have initiated the
    green business model innovation unless it would result in positive financial impacts.
EXECUTIVE SUMMARY      9




When asked what type of innovation the case companies achieved based on the
transformation in their business model, almost three quarters replied that they had
changed the processes in their company, while half of the companies had developed
a new service and one third a new product. Some companies experienced that the
transformation in their processes also resulted in new products and services that
were greener, while some companies experienced that the quest for a new product or
service altered the processes in their company towards greener ones. Especially the
case companies that are experienced in working with a green business model have
combined different kinds of innovation in all of their value chain. But for many case
companies Green Business Model Innovation is still at an early stage, and the potential
of the developed innovation has for some yet to unfold.


Environmental results might rarely show in the short run because it often takes time
to build environmental management systems that create the intended impact, taking
years before results can be documented. However, all of the companies that were
interviewed in our study reply that they in one way or another have made or will make
environmental improvements because of their green business model innovation. The
most commonly reported environmental effect experienced by the business case
companies were reductions in raw materials, energy consumption, water consumption,
GHG emissions, toxic chemicals and waste.



Policy for Green Business Model Innovation

When considering the role of policy for green business model innovation, policy makers
need to consider whether their emergence and the related innovation should be left to
the market or whether policies are needed to support it and what should such policies
look like. The rationale for policy intervention lies in market failure related to the negative
externalities of climate change and other environmental challenges leading to under-
investments in eco-innovation and green business model innovation. Furthermore,
there might be systemic failures hindering the flow of technology and knowledge, and
reducing the efficiency of the innovation efforts2.



Policy recommendations to promote Green Business
Model Innovation in the Nordic region
Policy makers’ greatest challenge is to ensure that the policies they develop and
implement will result in the desired effects. In an increasingly global world, the challenge
becomes even greater since national policies cannot always stand alone, but will have to
interlink with policies in other countries and regions. Companies can elude local policies
2        OECD,2012a
10   GREEN BUSINESS MODEL INNOVATION — CONCEPTUALISATION, NEXT PRACTICE AND POLICY




     by moving their business to alternative geographical locations. This is why it makes
     sense for the Nordic region to look at policy making in a broader perspective than only
     national governments. On a global scale, the Nordic countries and their home markets
     are small. Successful Nordic companies operate in several of the Nordic countries and
     in many instances also become global players. Policy should assist in this development
     by implementing regulation that is as widespread as possible, instead of creating local
     policies that make it hard to compete globally. In order to be able to create future global
     players in the areas of green growth, the Nordic countries have the opportunity to join
     forces and create a common platform backed by Nordic regional policy, which also can
     become a driving force behind broader policy on an EU and global level.


     It is also important to understand what types of companies Nordic regional policy
     should be addressed to. Based on the case interviews completed during this study, it
     was found that the companies that have taken on green business model innovation are
     mainly larger companies3. While there are cases of innovative small companies, it still
     seems like the focus of new policy should have a particular focus on assisting SME’s in
     making the necessary transformations of their business models.


     Policy needs to be developed in new ways if green growth and green business model
     innovation is to be enhanced. Dialog between the regulative authorities and private
     companies can pave the way for a common understanding of the challenges, and the need
     for new solution and new regulation to go hand in hand. It will be necessary to develop a
     new culture in the public sector in order to collaborate with private companies on future
     regulation while at the same time making sure that the regulation is based on objective
     criteria. A change of mindset requires trust from both sides and will probably take time.
     But pilot projects and role models can pave the way for the proliferation of collaboration
     between regulative authorities and private companies on future regulation4.



     Policy recommendations to promote incentive models

     While there is a positive transformation being undertaken in the business community
     towards more sustainable business models, it is also a journey that can be met with a
     range of different challenges. Some of the barriers related to transforming a company’s
     business model to an incentive model are large investments that are tied up in products,
     long payback time for customers and lack of flexibility in the contracts, uncertainty about
     savings achieved by customers, traditional mindset among customers and employees,
     and difficulties in involving other companies in the value-chain.


     In order to overcome these key barriers, the following policy recommendations have
     3       See case compendium for more detailed results.
     4       FORA, 2009
EXECUTIVE SUMMARY    11




been developed to promote the use of incentive models:


•   Encourage an efficient public sector: Develop selection criteria for the public sector
    to procure ESCO, DBFO and functional sales solutions when new investments
    are made or when renovating and operating e.g. public buildings and roads. The
    selection criteria could be linked to existing standards that ensure sustainability.
    The scope could also be broadened to include areas such as municipal car fleets,
    water management or waste management. Selection criteria could be harmonised
    across the Nordic countries to broaden the scope of bidders in public procurement.


•   Increase flexibility in long-term contracts: Develop new types of flexible standard
    contracts for CMS and DBFO business models to make customer less hesitant
    towards a long-term commitment.


•   Standards: Ensure that relevant sustainability standards are used for services and
    processes in all industries where standards have been developed. Standards could
    be developed for e.g. ESCO contracts that make it possible for customers to evaluate
    which ESCO agreement gives them best value for money.


•   Nordic financial rating scheme: Create a framework to establish a Nordic rating
    agency that can cooperate with banks, pension funds national guarantee funds,
    venture capitalists and other relevant investors in the Nordic countries to be able to
    evaluate different types of green business model innovation. The agency should be
    a private company allowed to operate under licence from government.



Policy recommendations to promote life cycle models

Companies transforming their business models into life cycle models, also meet a series
of challenges. Some of the most important barriers are large investments in machinery
and infrastructure systems, unwillingness among partnering companies and suppliers
to share information on chemicals and materials, redesign of products and processes to
enable the use of new materials, and lack of competencies and knowledge in companies
and public authorities.


In order to overcome these key barriers, the following policy recommendations have
been developed to promote the use of life cycle models:


•   Green Public Procurement: Develop selection criteria based on existing certifications
    to be used in public tenders, as well as criteria for procuring recycled materials and
    demanding design for recycling. The public sector can also develop criteria for the
    resource cycles of companies participating in public tenders. Green public private
12   GREEN BUSINESS MODEL INNOVATION — CONCEPTUALISATION, NEXT PRACTICE AND POLICY




         partnerships can be developed on innovation platforms where problems that need
         to be solved in the public sector are identified.


     •   Infrastructure for recycling: Promote and develop systems and infrastructures that
         can encourage the reuse and recycling of obsolete products and materials, as well
         as infrastructure to handle decomposing of biological materials such as bio-plastics.
         Regulation can also be developed that requires companies to identify uses for their
         waste and by-products. Nordic systems should be developed to ensure benefits for
         all companies in the region.


     •   Standards: Ensure that relevant sustainability standards are used for products and
         processes in all industries where standards have been developed, and expand to
         cover more products and industries. The public sector could set these standards
         as selection criterion in all areas of public procurement. Furthermore, a new type
         of standard could be developed that tells consumers how their products can be
         recycled, i.e. plastic, metal, paper or organic.


     •   R&D of new materials and chemicals, and access to information: Support business
         development with focus on R&D of new materials and chemicals in order to
         enable new design and processes, for example in partnerships with universities. In
         addition, provide access to information of new methods in production and the use
         of new materials and chemicals.



     Implementing policies for green business model
     innovation
     For the policies to be implemented successfully in the Nordic countries, it will be
     necessary to uncover whether there are current or up-coming strategies or initiatives
     in each of the countries where the above recommendations would fit, and whether
     the policy recommendations can be implemented in the current frameworks. Existing
     relevant green innovation funding programs could include or have a strategic focus on
     the life cycle and incentive models such as ESCOs or C2C. These programs could for
     example be in line with the pilot project of the Danish Business Innovation Fund and
     focus on SMEs, or in relation to export guarantees.


     In addition, more general policies to promote green business model innovation could be
     implemented in some of these existing programmes as suggested below:


     •   Networks and partnerships: Create business model specific networks for each type
         of business model, in each of the Nordic countries as well as regionally through
         regional Nordic networks. One focus area could be on creating partnerships
EXECUTIVE SUMMARY   13




    between functional sales or ESCO companies and financial institutions that
    are willing to invest in products that are tied up over long periods while their
    service is offered to customers. Another focus area could be on supporting
    industrial symbiosis initiatives at Nordic level to drive down search costs for
    potential companies. Yet another focus area could be on developing new skills
    and competencies in the area of design thinking and systems thinking by
    experimenting with new types of work teams.


•   Showcases, demonstration projects and dissemination: The Nordic countries are
    often considered as a market with customers that demand a more sustainable way
    of living and have been chosen by companies as test markets for new concepts and
    products (e.g. Better Place’s electrical vehicles). Focus could be on showcasing in
    certain industries such as building C2C neighbourhoods, or the public sector can
    develop projects via intelligent public procurement that can be showcased. Efforts
    should also be put on dissemination of green business model innovation by e.g.
    educating business advisors in public and private agencies.
Table of contents


Project participants. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 5
Executive summary.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 6
Preface.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 15
Introduction.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 19
        How to read this report.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 20
What is green business model innovation? .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 21
        Defining Green Business Model Innovation.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 21
                    Incentive models .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 23
                    Life-cycle models .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 23
        The Business Model Canvas.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 24
        A framework for Green Business Model Innovation.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 27
What Companies do .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 31
        Characteristics of companies .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 32
        Drivers of Green Business Model Innovation. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 33
        Barriers to Green Business Model Innovation.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 33
        Business Case Examples.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 34
                    Functional Sales. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 34
                    Energy Saving Companies.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 35
                    Chemical Management Services .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 35
                    Design, Build, Finance, Operate .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 36
                    Green Supply Chain Management .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 37
                    Take Back Management.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 38
                    Cradle to Cradle.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 39
                    Industrial Symbiosis.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 39
What Companies achieve .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 41
        Financial results.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 42
        Innovation results .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 43
        Environmental results.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 45
Policy to promote green business model innovation .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 46
        Summary of existing policies targeted GBMI.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 46
        Policies at a general level .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 49
                    Business Innovation Fund, Denmark.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 49
        Policy suggestions to promote GBMI in the Nordic region. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 50
                    Policy suggestions to promote incentive models.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 52
                    Policy suggestions to promote life-cycle models.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 54
        Implementing policies for green business model innovation.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 58
Conclusions .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 61
References. .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 63
Table of abstract.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  . 66
PREFACE    15




Preface




This synthesis report compiles the entire work done on the project Green Business
Model Innovation completed for the organisation Nordic Innovation from august
2011 to august 2012. The work is a continuation of a previous project Green Business
Models in the Nordic Region – A key to promote sustainable growth, also completed for the
organisation Nordic Innovation in 2010.


In the green paper “Green Business Models in the Nordic Region” by the Nordic Council of
Ministers (FORA 2010) it is concluded that the Nordic region has a great and untapped
potential for Green Business Model Innovation. The green paper points to the demands
for more in-depth knowledge and awareness regarding the benefits and effects of Green
Business Model Innovation and for supporting policies and regulation to promote Green
Business Model Innovation.


This Nordic project addresses the above fundamental challenges and strengthen
international network relations with organisations such as the OECD, Nordic and
international frontrunner companies, policy makers, industry organisations and experts.


The other reports in this series are Green Business Model Innovation: Conceptualization
Report, Green Business Model Innovation: Policy Report, Green Business Model Innovation:
Empirical and Literature Studies, Green Business Model Innovation: Business Case Study
Compendium, and Short Guide to Green Business Model Innovation.


In the Conceptualization Report an in-depth review of the elements of green business
model innovation is presented. The business model canvas developed by Alexander
Osterwalder is used as a framework for analysing the different parts of a company’s
business model and how they can become more sustainable. In the Policy report current
policies to promote green business model innovation are identified, as well as the barriers
companies face when wanting to transform their business models. Inspired by existing
policies, new policy recommendations are developed in order to assist companies in
overcoming the challenges they face. In the report Empirical and Literature Studies the
41 case studies are presented and a quantitative as well as qualitative analysis is made
based on the case interviews. The characteristics of companies working with green
business model innovation are identified, and the effects companies achieve related to
innovation, the environment and the bottom line are presented. In the Green Business
16   GREEN BUSINESS MODEL INNOVATION — CONCEPTUALISATION, NEXT PRACTICE AND POLICY




     Model Innovation: Business Case Study Compendium the 41 case studies are gathered,
     and in the Short Guide to Green Business Model Innovation eight steps giving companies
     inspiration on how to start transforming their business models are presented as well as
     a selection of tools.


     The work has been made possible thanks to funding from Nordic Innovation and the
     others partners on the project; The Danish Business Authority, VINNOVA, TEKES,
     Innovation Norway and Innovation Centre Iceland. The Nordic working group which
     has undertaken the work of this project has representatives of the Nordic innovation
     agencies and experts working with framework conditions, performance and funding
     green growth.


     The Danish Business Authority has been the project lead, and the team at the Danish
     Business Authority consisted of: Kristian Henriksen, Special Advisor and project owner,
     Markus Bjerre, Head of section, Jakob Øster, Head of section, Alexandra-Maria Almasi,
     Research assistant, and Emil Damgaard, Research assistant. In addition the consultants
     Casper Høgenhaven from Hoegenhaven Consult and Tanja Bisgaard from Novitas
     Innovation have participated in the work, as well as the consultancy COWI. Tanja from
     Novitas Innovation took on the project management from Kristian Henriksen in January
     2012.


     We would also like to thank the group of experts whom have been interviewed,
     participated in workshops and discussions, and delivered valuable feedback:


     Andrea Beltramello, Policy Analyst, Directorate for Science, Technology & Industry,
     OECD
     Arnold Tukker, Professor Sustainable Innovation, NTNU, Norway, and Program Manager
     Sustainable Innovation, TNO, The Netherlands
     Asel Doranova, Technopolis Group, Belgium
     Dax Lovegrove, Head of Business and Industry, WWF, UK
     Dirk Pilat, Head of Science and Technology Policy Division, Directorate for Science,
     Technology & Industry, OECD
     Hanne Juel, Innovation Manager, Central Region of Denmark
     Jonas Hedman, Associate professor, Copenhagen Business School, Denmark
     Martin Andersen, Head of Office, Kalundborg EU-Office, Belgium/Denmark
     Mette Skovbjerg, Projet Advisor, Symbiosis Centre, Denmark
     Michal Miedzinski, Technopolis Group, Belgium
     Nick Johnstone, Ph.D., Head of the Empirical Policy Analysis Unit at the OECD
     Environment Directorate
     Peter Laybourn, Chief Executive, International Synergies Ltd and NISP, UK
     Renato J. Orsato, Professor at São Paulo School of Management and Academic Director of
     the Centre for Sustainability Studies at Getúlio Vargas Foundation (FGV) in São Paulo, Brazil
PREFACE   17




Robbert Droop, Policy Coordinator, Ministry of Infrastructure and Environment, The
Netherlands
Søren Lyngsgaard, Creative Director, Cradle to Cradle Denmark
Tomoo Machiba, Senior Programme Officer, for Knowledge Management at the
International Renewable Energy Agency (IRENA), UAE


We would also like to thank the companies that kindly have participated in interviews
for the business case studies:


Jonas Engberg, Sustainability Manager, IKEA
Henning Dalgaard, Business Manager, IKEA
Christian Lygum, Country Manager, Schüco International KG
Polona Briški, Business Excellence Development Manager, Trimo
Steve Davies, Director, Corporate Communications and Public Affairs, NatureWorks LLC
Kresse Wesling, Co-Founder, Director, Elvis & Kresse
Henk van Houtum, Managing Director, Van Houtum Papier
Anders Hedegaard Petersen, Managing Director, Gabriel
Mona Ohlendorf, Head of Cradle to Cradle optimised product department, Trigema
Jacob Sterling, Head of Climate & Environment, Maersk Line
Stef Kranendijk, CEO, Desso
Frans Beckers, Director Materials, Concepts and Infrastructure, Van Gansewinkel
Angela Nahikian and Heather Knight, Director, Global Environmental Sustainability,
Steelcase
Steffen Saecker, Business Manager, SafeChem Europe GmbH
Lissy Christine, Communications Manager, SafeChem Europe GmbH
Masselin Xavier, President and founder of Eco2distrib, Eco2distrib
Andreas Leo, Corporate Communications Manager, Car2Go
Henrik B. Hansen, Sales Manager, Siemens Building Technologies
Robert Metzke, Senior Director, Philips EcoVision Program., Philips
Maxine Narburgh, Managing Director, Eastex Materials Exchange/Bright Green
Alun Housago, Business Waste Officer, Eastex Materials Exchange/Bright Green
Jukka Silvennoinen, Vice President, Rantasalmi
Henrik Johansson Casimiro, Head of Heat Business, E.ON
Cecil Camilleri, Manager, Sustainable Wine Programmes, Yalumba
Guy Geuskens, Director of marketing at Royal Mosa (also overall responsible for
sustainability strategy), Mosa Tiles
Tomas Kjellquist, Owner and R&D Manager, Biototal AB
Patrik Lindergren, CEO, Charge Storm AB
Per Björneld, Product Manager, Econova AB
Ingmar Bergman, Process Developer/Support, HTC Sweden AB (Superfloor)
Mats Thor, Key Account Manager HTC Superfloor, HTC Sweden AB (Superfloor)
Robert Kreicberg, General Manager, HTC Sweden AB (Twister)
18   GREEN BUSINESS MODEL INNOVATION — CONCEPTUALISATION, NEXT PRACTICE AND POLICY




     Stefan Holmertz, President, Envac Otpibag AB
     Hans Hassle, CEO, Plantagon International AB
     Owe Pettersson, COO, Plantagon International AB
     Kenth Danielsson, CEO, Polyplank AB (Core Plugs)
     Kenth Danielsson, CEO, Polyplank AB (building systems)
     Petra Hammarstedt, CEO, Qlean Construction
     Petra Hammarstedt, CEO, Qlean Industry
     Petra Hammarstedt, CEO, Qlean Surface
     Christer Forsgren, Environmental & Technical Director, Stena Metall AB
     Stefan Jakobsson , Business Development Manager at Tekniska Verken i Linköping AB ,
     Svensk Biogas i Linköping AB
     Stellan Jakobsson, CEO Svensk Biogas i Linköping AB, Svensk Biogas i Linköping AB
     Eva-Karin Mattsson, Product Manager Rental, Toyota Material Handling Sweden AB
     Sjöfn Sigurgísladóttir, Director, Matorka
     Pálmar Sigurðsson, Office Manager, Hópbílar
     Lars I. Røiri, CEO, Scandinavian Business Seating
     Juha Koponen, CEO, Co-founder, Netcycler
INTRODUCTION    19




Introduction




Businesses are at the centre of the debates and discussions on sustainability. They are
identified as the cause of the environmental challenges we face but also as the ones that
can contribute to creating sustainable growth and a sustainable future. But what exactly
is the role of companies?


One line of reasoning is based on the worldview of Thomas Malthus where sustainable
growth only can be achieved through resource restraint since resources are finite.
Companies must make more with the resources they use, consumers must reduce their
level of consumption, and everyone must recycle and reuse waste more efficiently.
Another line of reasoning is based on the worldview of Robert Solow where innovation
can participate in solving the environmental problems that we face. Companies can
develop new technologies and processes that increase their level of productivity,
thereby finding new ways of conducting business instead of being constrained by the
lack of resources they are using today. Companies must in other words innovate within
their current context5.


To resolve the current environmental challenges we face, it will be necessary to apply
both philosophies. Policy must be developed to ensure scarce resources are not exploited
and externalities are priced appropriately, and at the same time create conditions that
can enhance and promote innovation in companies. In our context we primarily look at
non-technological innovation in companies and focus on how companies can innovate
their business models in order to become more sustainable and participate in creating
sustainable growth, a term we have called Green Business Model Innovation.


Businesses are increasingly recognising that the greening of their own business or
value chain by improving resource productivity may increase both their short-term and
long-term competitiveness and may create new markets. Some businesses innovate by
improving their resource productivity by substituting to greener inputs, selling greener
products and services, while others implement life cycle elements in their business
model or apply functional sales systems (or Product Service Systems, PSS) that may
change consumption patterns and practices throughout the entire value chain.
5       Martin & Kemper, 2012
20   GREEN BUSINESS MODEL INNOVATION — CONCEPTUALISATION, NEXT PRACTICE AND POLICY




     When considering the role of policy for green business model innovation, policy makers
     need to consider whether their emergence and the related innovation can be left to the
     market or whether policies are needed to support it and what should such policies look
     like. The rational for policy intervention lies in market failure related to the negative
     externalities of climate change and other environmental challenges leading to under-
     investments in eco-innovation and green business model innovation. Furthermore,
     there might be systemic failures hindering the flow of technology and knowledge, and
     reducing the efficiency of the innovation efforts6.


     When looking at how to transform a company’s business model it is necessary to think
     of it as a system. Changing one element of the business model will in most cases affect
     one or more other elements and so on. Business model innovation can thus be seen
     from a systems thinking perspective, where there are cause and effect inter-linkages that
     change over time7. In order to succeed in achieving these transformations, companies
     must move away from thinking in “silos” and employ methods such as design thinking
     which enable cross-disciplinary teams to work together8. Making these types of changes
     often take a long time since entire systems are altered. Achieving sustainability by
     making changes in companies’ business models will thus require long-term thinking.



     How to read this report

     This report presents the entire work completed in the project Green Business Model
     Innovation. The chapter What is Green Business Model Innovation introduces the
     concept of green business model innovation and presents the different elements
     that can be changed within different types of business models. The chapter What
     companies do presents short case examples of the different elements of green business
     model innovation and gives a quantitative as well as qualitative analysis of the 41 case
     studies completed during the project. The chapter What companies achieve presents
     the different types of effect companies have achieved after transforming their business
     models on innovation, the environment as well as financial effect. The chapter Policy to
     promote green business model innovation takes a look at which policies currently exist
     that promote green business model innovation and presents a range of policy ideas
     that can be implemented in a Nordic regional context as well as in national innovation
     strategies.




     6       OECD, 2012b
     7       Meadows, 2008
     8       Brown, 2008
WHAT IS GREEN BUSINESS MODEL INNOVATION?     21




What is green business model
innovation?




It is a well-established fact that innovation is essential for a sustainable long-term
growth path for any country. It has also become widely accepted that resource scarcity,
environmental and climate issues need to be addressed at government, consumer and
business level if we are to retain our standards of living and create long-term growth.


Businesses are also increasingly recognising that the greening of their own business or
value chain by improving resource productivity may increase both their short-term and
long-term competitiveness and create new markets. Some companies innovate their
business models and improve their resource productivity by substituting to greener
inputs, selling greener products and services, while others implement cradle-to-cradle
elements in their business model or apply functional sales systems (or Product Service
Systems, PSS) that may change consumption patterns and practices throughout their
entire value chain. In a broad sense this could all be characterised as greening of the
companies’ business models.



Defining Green Business Model Innovation

In the literature, there has so far not been established an internationally acknowledged
definition of green business model innovation, nor has there previously been any
structured way of describing these concepts as a whole. There are many terms in the
public and academic debate about how companies green their business and how they
are categorized as green companies. These terms are ranging from the more product-
oriented perspectives like clean-tech companies that produce e.g. renewable energy such
as wind and solar power, resource efficient products such as energy efficient pumps, to
service-oriented companies which provide environmental services, to companies that
implement more process-oriented initiatives in their businesses or whole value chain
such as environmental ISO-standards, cradle-to-cradle, Corporate Social Responsibility
(CSR) or green reporting etc.
22   GREEN BUSINESS MODEL INNOVATION — CONCEPTUALISATION, NEXT PRACTICE AND POLICY




     We define green business model innovation as:


     Green business model innovation is when a business changes part(s) of its business model
     and thereby both captures economic value and reduces the ecological footprint in a life-
     cycle perspective.


     Generally, it can be said that:


     1. the more parts of a business model which are changed and have a green effect, and


     2. the more profoundly a green change is taking place within the individual parts of
        the business model – going from modification, re-design, alternatives, to creation


     – the greener the business model innovation is and the higher potential for creating radical
     eco-innovation.


     This is an open definition and it captures many small and large intended or unintended
     changes in many businesses. However, it seems problematic to set tighter boundaries
     on the concept of green business model innovation, since it is not easy to argue for or
     against why different ways of greening a business should or shouldn’t be considered
     as green business model innovation. However, the more ‘interesting’ green business
     model innovations are naturally the ones that radically change the business model and
     have high economic and environmental impacts for both businesses and society.


     Green business model innovation might not always be due to a one-time change with
     the aim of green and economic effects but be a result of continuous (efficiency) changes
     of the business model over time which eventually ends up being categorized as green
     business model innovation.


     In the project we focus on and structure some specific ways of greening businesses
     which seem as promising levers in order to increase the competitiveness of businesses
     as well as to create new market opportunities.


     We structure the greening of businesses with respect to two main models: the incentive
     models and the life-cycle models. The incentive models include functional sales or
     product service systems and performance-based models which may have green effects
     such as Energy Saving Companies (ESCOs), Water Saving Companies (WASCO), Material
     Saving Companies (MASCO), Chemical Management Systems (CMS), and Design, Build,
     Finance, Operate (DBFO) etc. The life-cycle models include cradle to cradle, take back
     management, green supply chain management, and industrial symbiosis.
WHAT IS GREEN BUSINESS MODEL INNOVATION?       23




Incentive models
Incentive models are based on how a company incentivises its consumers in a way so
that part or the entire value chain is greened. These models use incentive schemes and
changed ownerships structures as well as the company entering new markets in the
value chain. Typically a business that keeps the ownership of a product or that is paid by
its functionality will be incentivised to produce, maintain and dispose of the product in
such a way that the whole value chain is greened. Examples of such are functional sales
where the producer is paid by the result of the product or ESCOs where the retrofitter is
paid by how much energy he saves for the customer. This gives the supplier incentives
to manufacture the product so that it uses less resource and requires less maintenance
and so on over the entire life cycle of the product. For a brief explanation of the incentive
models see table 1.

Table 1. Incentive models
 Functional Sales          Functional Sales (also called Product Service Systems,
 (FS)                      PSS) enables the customer to pay for the functionality or
                           result of the product as a service instead of buying the
                           product itself, e.g. leasing or product sharing.
 Energy Saving             An ESCO provider optimises customers’ operations in e.g.
 Company (ESCO)            buildings and in return gets paid according to the savings
                           achieved. The customer does not have to pay up front and
                           pay less the less is used of the service.
 Chemical           Chemical management services is a business model
 Management Service based on a long-term contract, where the supplier of CMS
 (CMS)              accepts the responsibility for managing chemicals of its
                    customers and strives to reduce the associated costs and
                    risks.
 Design, Build,            Design, Build, Finance, Operate companies undertake
 Finance, Operate          capital intensive long-term construction projects where
 (DBFO)                    private finance, construction, service and/or maintenance
                           are bundled into a long-term contract of typically 20-30
                           years.



Life-cycle models
The life-cycle models can be divided into several categories with respect to what part
and how much of the value chain is greened by the model. If a company has a focus on
greening the entire value chain there is a higher possibility of the company’s actions
being green seen in a life-cycle perspective. Green supply chain management and green
procurement focus on the up-stream part of the value chain while product stewardship,
extended producer responsibility, and take back management focus on the down-
stream value chain. Remanufacturing, life cycle management, closed loop production
and cradle to cradle more or less influence the entire value chain by taking in aspects all
the way from pre-production, production, use as well as re-use. For a brief explanation
of the life cycle models see table 2.
24   GREEN BUSINESS MODEL INNOVATION — CONCEPTUALISATION, NEXT PRACTICE AND POLICY




     Table 2. Life cycle models9, 10, 11, 12, 13
         Green Supply Chain Green Supply Chain Management is an integrated concept
         Management (GSCM) of greening activities in the supply chain focusing on
                            upstream flow, cost reductions of and innovation in raw
                            materials, components, products and services9.
         Take back                      Take back management extends the producers
         management (TBM)               responsibility of waste management through take back
                                        mechanisms of the down-stream use of the product.
                                        This includes manufacturers, retailers, consumers and
                                        recyclers10.
         Cradle-to-cradle               Cradle-to-cradle designs innovative and essentially waste
         (C2C)                          free products that can be integrated in fully recyclable
                                        loops or biodegradable processes. Cradle-to-Cradle
                                        focuses both up-stream and down-stream in the value
                                        chain11, 12, 13.
         Industrial Symbiosis           Industrial symbiosis is a shared utilization of resources
         (IS)                           and by-products among industrial actors on a commercial
                                        basis through inter-firm recycling linkages. The aim of
                                        industrial symbioses is to reduce costs and environmental
                                        impact of participating companies and municipalities.



     The Business Model Canvas

     The business model basically explains how the company is doing its business. The
     business model explains how value is created for the customers and how value is
     captured for the company and its stakeholders14, 15, 16. The business model is composed of
     different elements like revenues and costs, resources, activities and internal and external
     relationships and networks, the value proposition to the customer, and mechanisms to
     capture value for the company.


     A better understanding of the business model gives the company a good overview of
     how it creates and captures value. It gives the company insights to the relationship
     between what the company does and the company’s successes, and it gives the company
     the ability to compare its business model with other competing companies and to
     understand what can advantageously be changed to keep its competitive advantage on
     the market so that future growth of the company will continue.

     9         http://www.effektivitet.dk/~/media/858769ECCD3A45E1BA7D59B5DD06246E.ashx
     10        Van Rossem et al, 2006
     11        Kelly, 2010
     12        http://www.cleanproduction.org/Steps.Closed.php
     13        http://en.wikipedia.org/wiki/Cradle-to-cradle_design
     14        Linder and Cantrell, 2000
     15        Magretta, 2002
     16        Rajala and Westerlund, 2007
WHAT IS GREEN BUSINESS MODEL INNOVATION?                 25




A company’s business model can be analysed in different ways and many different tools
have been developed to analyse business model concepts.


However, the business model canvas tool developed by Dr. Alexander Osterwalder
(2010) is an intuitive way of understanding the business model concept and is a good
starting point for analysing green business model innovation. Therefore the Business
Model Generation (BMG) canvas is chosen for further analysis, and moreover, this canvas
is internationally acknowledged and based on open source, so that it can be applied as a
basis for the practical tools for companies.17


The business model canvas gives a company a simple and intuitive tool to describe and
think through the different elements of its business models in order to systematically
challenge the way it does business and thereby be able to create new strategic alternatives.
The canvas thus serves both as a tool for companies to understand the business model
and as a tool for the companies to do business model innovation.


The business model canvas tool of Osterwalder consists of nine basic building blocks
covering four main areas of a business: customers, offering, infrastructure, and financial
viability. Besides these nine blocks from the Osterwalder business model canvas two
additional building blocks on comparative strategy and growth strategy have been
added based on inspiration from IDEO18, 19.


Figure 1. Business Model Canvas




  Source: Osterwalder & Pigneur, 2010; IDEO, 2011




17         The tool is described in the book Business Model Generation which has been developed and published
through open source collaboration with an international group of 470 practitioners. (Osterwalder and Pigneur, 2010)
18         Osterwalder & Pigneur, 2010
19         IDEO, 2011
26   GREEN BUSINESS MODEL INNOVATION — CONCEPTUALISATION, NEXT PRACTICE AND POLICY




     The business model canvas can be used to conceptualise green business model
     innovation. It appears as a very usable tool to uncover the main elements of a business
     model in relation to businesses green or sustainable practices.20


     The business model canvas is a static model and it does not capture the dynamics of
     businesses. The dynamics of the model is only reflected in one box “Growth Strategy”
     although it can be important to think through the dynamism in each of the building
     blocks of the canvas. Also, the canvas appears linear in its structure, but in real life the
     business models has many different causality loops implied. The framework conditions
     for the company are reflected in several boxes of the canvas, especially in Competitive
     Strategy and Growth Strategy, e.g. in energy prices.


     Although the canvas has a simple structure, it forms a complex system of
     interdependencies between the different elements. Any changes to any of the included
     elements can affect the other elements and the entire system. For instances a business
     model can be changed by bringing down the costs of a car by reducing e.g. comfort or
     speed and thereby making it more affordable. At the same time the business is changing
     its key resources, addressing a new customer segment, and changing its growth and
     comparative strategies.


     The business model canvas tool by Osterwalder and Pigneur (2010) gives a company a
     simple intuitive map to understand its business models, but also for it to challenge and
     find successful alternatives ways of doing business. Also, companies can look at other
     companies’ business models to be inspired to do similar changes to their own model
     or to design a completely new business model. Business model innovation is basically
     about improving the building blocks of the business model.


     The tool allows companies to reconsider their customer-segments, value proposition
     to customers, profitability scheme, various activities and relationships to partners and
     so on, in order to reach new markets or renew old ones, change the content of their
     offerings, change their value chains, reduce costs and risks and increase profitability.


     As the business model takes a holistic approach towards explaining how firms do
     business, companies can use the tool to go through its business model and question
     each building block and its relationship with other building blocks and think through
     the consequences of changing its model.


     Each of the 11 building blocks can be a starting point for generating new ideas to do
     business model innovation. Due to the complex system of interdependencies between
     the different elements in the business model, the transformation of one building

     20         The business model canvas was tested in the version of IDEO, which is very close to the Osterwalder and
     Pigneur’s business model canvas. Therefore, most of the conclusions from the workshops are transferable to the ex-
     tended Osterwalder and Pigneur’s business model canvas.
WHAT IS GREEN BUSINESS MODEL INNOVATION?   27




block will affect multiple building blocks. For example if a company changes its value
proposition to the customers of delivering a service instead of a product, the customer
relationship, the distribution channel, the revenue streams and cost structures would
also need to be adjusted accordingly.



A framework for Green Business Model Innovation

For businesses to be able to retain and further strengthen their market position, they
have to continuously rethink and reinvent their business models. Innovation is relevant
for all firms and organisations as it is about staying in the „game”, or being at the
forefront of competition while assuring viability and sustainability of their operations.
Radical changes in business models imply revisiting the customer base and value
chain or redefining products and services. Business models often change gradually and
do not necessarily imply fundamental revisiting of value propositions, but of course
the changes could also focus on improving production processes or reconfiguring
organizational structures21.


Corporate sustainability is now in many companies playing an integral role in shaping
the mission or driving force of a firm22. Emerging markets for greener products and
services on the one hand, and the rise of sustainability and green growth agendas in
corporate management on the other, are increasingly leading firms to integrate non-
financial metrics into their decision-making processes, to revisit the concepts of value
and profitability that drive their business models, and to reconsider the balance between
the dual objectives of short-term profitability and long-term sustainability23.


The first attempts to use eco-innovation as a response of corporate practices towards
sustainability and green growth have mainly materialised at the product level, but
some companies have broadened this trend by using it for redesigning their production
processes or distribution channels. The front-runner companies have taken it even
further, to organisational levels and using it to create alternative value propositions, or
even to restructure their business models.


The OECD has a very rich portfolio of studies which focus on eco-innovation, and
one of their projects24 proposes that this can be understood and analyzed from three
dimensions, namely in terms of an eco-innovation’s:



21      OECD, 2011
22      Cocklin and Subbs, 2008
23      Bryson & Lombardi, 2009
24      http://www.oecd.org/document/37/0,3746,en_2649_34173_40695077_1_1_1_1,00.html
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