Five titbits on large companies and business model innovation

23 June 2015

Hot off the press, SustainAbility’s latest report looks at how large companies can innovate their own business models as part of the transition to a sustainable economy. Here are our top five takeaways from last week’s report.

“Companies that thrive in the future will be those that analyze and understand planetary boundaries and market risks and create responsive models.”

UK consultancy SustainAbility has followed up its landmark report on new business models, ‘Model Behavior’ (2014), with ‘Model Behavior II: strategies to rewire business’, released last Friday, 19th June 2015. Full of interesting case studies, this latest report offers guidance to large companies to harness the power of business model innovation in order to create a more sustainable future.

Here are our top five takeaways from the report:

1. Even successful companies should think about business model innovation

Changing external conditions – such as dwindling resource supply, rising commodity prices or consumer demographics – mean even successful companies need to reconsider their business models to ensure they will still be successful in the future. We like this quote from the report:

“Many companies that are flourishing financially today are inherently unsustainable. Despite laudable efforts to make their processes or products more sustainable, no amount of renewable energy sourcing or green product engineering, for example, can change that. There is an opportunity to do business differently, but it requires moving beyond mere product or process innovations for sustainability.”

2. Be ambitious in your innovation aims

Whereas in the past, sustainability innovation was focused on creating new products or processes that incrementally enhance an established business, companies need to be more ambitious in their innovation aims. External conditions such as resource scarcity and climate change require it, and evolving market conditions encourage and reward those who act first.

3. It’s time large companies joined in

So far much of the innovation in business models has been taking place in small companies, which, while very positive, isn’t necessarily penetrating into the core of industries, thereby limiting the impact. Larger companies need to leverage their corporate culture and sustainability leaders within those companies need to find tools and tactics to prompt business model thinking across business units.

4. For any company, innovation depends on three key elements

The three factors influencing business model innovation are:

  1. The external landscape – for example resource scarcity, climate change, urbanisation and changing demographics.
  2. The internal culture – including supportive leadership, non-hierarchical structures, freedom to fail and an ethos of collaboration.
  3. Actions of the sustainability innovator – thoughtful and ambitious sustainability leaders can foster business model innovation thinking.

5. Case studies illustrate success

Check out one of the case studies from the report:

Case study – Novelis

When market volatility led to supply instability and near bankruptcy, Novelis, the largest rolled aluminium company in the world, announced a dramatic shift to its business. In 2011, the company announced its intention to adopt an almost entirely closed-loop manufacturing system in which 80% of the aluminium it uses to make its products—beverage cans, automobile parts and specialty products— would be recycled material. The decision meant investments of more than $2 billion over the course of the next four years, but it also marked the company’s larger aspiration to move away from a business model focused on extraction and disposal of valuable resources.

Fast-forward to today and Novelis is the largest aluminium recycler in the world. The company aims to source 80% recycled aluminium, and is already at 50% after only four years.

 

Interested in reading more about business models? Check out our newsletter stories on Five things we’ve learnt about new business models or Five New Zealand business models we love.