Companies Profit From Sustainability Through Business Model Innovation

Posted by on October 19, 2017 in Green

JM_Image41_45Global investors increasingly look for companies that are driving innovation to create business value from their sustainability efforts. However, technological innovation alone is not enough to create significant value from sustainability. The innovation must be made in the business model itself to create a deeper impact.

A collaborative research report between MIT Sloan Management Review and the Boston Consulting Group says that nearly 50 percent of companies have changed their business models as a result of sustainability opportunity. The report goes on to say that the more ambitious the innovation, the greater is the potential for an increase in business value.

The report found that 59 percent of companies that profited from sustainability did so by changing three or more elements of their business model. The most significant results were delivered by highly innovative combinations of business model elements. The strongest link did not come from transformative products, but from a combination of innovation in the value chain and a focus on target customer segments.

The report cites the example of industrial packaging company Greif, which focused on opportunity creation through business model innovation. When customers demanded more sustainable containers from Greif, managers assumed using less material and light-weighting the product was the way to reduce their environmental footprint and save money on material costs.

But the company discovered that instead of product-level innovation, they could improve their sustainability performance and meet customer needs through business model innovation. In addition to selling barrels, Greif would also offer customers “packaging services” that collected, refurbished, and tracked containers for them. By doing so Greif built a new line of business and became the leading industrial packaging re-conditioner.

Business model innovation is a path-breaking step, which can go against the grain of a managerial mindset that focuses on optimizing the productivity of existing systems. “But there is more to be gained by producing more opportunities than by optimizing existing ones,” as Kevin Kelly, founder of Wired Magazine, eloquently put it.

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