Digital and Sustainable Business Models Part 2 PDF

**Content of part II** 1. [Introduction to Sustainable Business Models] 2. Sustainable Business Model Innovation 3. Guest Lecture by Kristina Brahmstaedt 4. Circular Business Models 5. The Role of Technology for Sustainable Business Models 6. Challenges for Sustainable Business Models *...

**Content of part II** 1. [Introduction to Sustainable Business Models] 2. Sustainable Business Model Innovation 3. Guest Lecture by Kristina Brahmstaedt 4. Circular Business Models 5. The Role of Technology for Sustainable Business Models 6. Challenges for Sustainable Business Models **1: Introduction to Sustainable Business Models** Example for the environmental component: Using sustainable materials in the **manufacturing** process, optimizing **supply chain** to reduce greenhouse gas emissions but also maybe to reduce specific costs. Example for the social component: **Donating or sponsoring** for youth in local communities (social component=how the business impact on the society and see if it can do something to give back) [...what is sustainability in business?] Sustainability commonly refers to doing business without negatively [ ] impacting the environment, community, or society as a whole. Trying to do business (something good) without having negative consequences. [Sustainability in business usually addresses **two categories**:] 1\. the effect business has on the **environment** 2\. the effect business has on **society** **1.1 Sustainable Development (Sustainable Development Goals (SDGs) by the UN)** **Def:** Meeting the needs of the present without compromising the ability of future generations to meet their own needs. (United Nations). Set in 2012, 3 groups: environmental, social and economic. In total 17 goals, all are connected. Especially today's problem such as inflation, non-renewable resources make Countries want to follow these principles for a more sustainable future. **The SDGs Transforming Business Trends** [Social Responsibility] (it has an impact on Mental health Support, Flexibility, Diversity, Equity, Inclusion, career Growth) 1. Fair working conditions 2. Community support 3. Gender equality and diversity [Environmental Responsibility (]connected to the usage of natural materials, Re-use/recycle) 1. Natural resource preservation 2. Waste reduction 3. Lower CO2 emission [Economic Responsibility] (it has to do with Alternative Resources, Resource preservation, Resilient production processes) 1. Conscious consumption 2. Long-term growth 3. Wealth distribution **Translating the SDGs into Business Actions** Many big businesses follow the path of sustainability because [there are incentives and mandatory regulations], firms need to make it transparent if their actions have consequences and if they do something good about the environment. Many big corporations today [are implementing and communicating actions to follow and reach the SDGs]! [But **how** do these firms integrate the sustainable development goals in their business activities]? **1.2 Corporate Social Responsibility (CSR)** Traditional view: *[The social responsibility of business is to increase profit]*. Basic view, businesses had no choice, they followed this path because they had to be competitive. **The Pyramid of Corporate Social Responsibility** [Only way to survive in the long term is to be profitable] (bottom) What also is required is to respect the [legal responsibility]: otherwise, they get fees that they have to pay, which affects economic responsibility. [Ethical responsibility]: they should do what is right, it's about going beyond the requirements of the law to support, think about what is necessary [what they should really do apart from being profitable. ] [Philanthropic responsibility:] businesses should look all the way up in order to state corporate social responsibility. **Driving profitability** Only way to survive and benefit society in the long term: Germany has law that states that [firms must check the manufacturing to respect all the standards] Obeying the law: it costs a lot of money for businesses to be sustainable and respect all the laws. As a business you can obey the law, but you can go beyond what is required by the law and be very supportive of communities. Such as not paying only the minimum wage, offering advantages what concerns the maternity leave. You as a company could work with non-profit organizations, you could support and start actions among the employees to benefit environmental causes. You could work with UNICEF. **Defining Corporate Social Responsibility (CSR)** [What is it?] CSR is the sum of [coordinated business actions with respect to social and environmental obligations and society at large]. 1. Balancing [shareholder interests and community interests] 2. [Responding positively to emerging societal priorities and expectations] 3. [Being a good citizen] **Benefits and Costs of Corporate Social Responsibility** **The Problematic Nature of Corporate Social Responsibility** 1. Incremental & uneconomic CSR actions 2. Only used as a [marketing and communication tool] 3. Lack of transparency, accountability, and authenticity [CSR has often been viewed as **instrumental**-- implementing sustainability as a means to another corporate end (e.g. image or profit). Instrument for another company end.] **True CSR or "Greenwashing"?** Businesses fall in the trap of promising too much and not respect what they say. It is dangerous both for the business and for us: We as consumers might not be able [to differ from businesses that lead to a good change and others that don't follow their lead]. Example: HM. **1.3 From CSR to Sustainable Business Strategy** *[In the long run \[...\] social and economic goals] [are] not inherently conflicting [but integrally connected].* They shouldn't be seen as separate, [they should be one thing, this is how we get the Shared Value Opportunity. ] Using the core business is about doing good and well and identifying the connections between [societal and economic progress]. We should think the CSR as something integrally connected. **Leading up to Sustainable Value, Sustainable value at the intersection of social, environmental and economic value (Sustainable value is the intersection of environmental, economic and social value)** All three form the Sustainable Value. **Creating, Delivering and Capturing Sustainable Value** It supports the understanding of businesses, the importance or relevance of sustainable value. The Value Capture closes the circle, if there is not, it's not attractive. It's important that all the activities generate profit. **1.4 Introducing the Sustainable Business Model** *"A sustainable business model helps describing, analyzing, managing, and communicating a company's sustainable [value proposition to its customers, and all other stakeholders], how it creates and delivers this value, and how it captures economic value while maintaining or regenerating natural, social, and economic capital beyond its organizational boundaries."* **Creating a Sustainable Business Model** In the beginning it might be that the business needs time to be sustainable, how much time? It's about if all the actions that I do to ensure sustainability can also work in the future, it's about thinking if the resources that I use can ensure long term sustainability. 18.12.2024 **Session 2: Sustainable Business Model Innovation** *[To maintain competitive advantage, companies must **transform** their business models for]* *[sustainability.]* Transformation is needed because there is always new demand, new environmental needs etc. Sometimes sustainability concerns the supply chain, the relationships with stakeholders etc. **Sustainability at the Core of Business** - Integrating sustainability at the **core of business**: **aligning strategy and sustainability** - Creating, delivering and capturing sustainable value within a [**multi-stakeholder** and **long-term** **perspective**] But **how** can firms embed sustainability in their core business? **Business Model Innovation:** - New logic of value creation - Transformation of parts (or the entire) business model, e.g. value proposition, customer segments, channels, revenue stream **Sustainable Business Model Innovation (SBM-I):** - Integrating the characteristics of a sustainable business model through business model innovation sustainable value, multi-stakeholder perspective, long-term perspective - Deploying sustainable business model strategies 1. **Sustainable Business Model Innovation Types** Sustainable Business Model Innovation aims at **conceptualizing and implementing** sustainable business models **I) Sustainable Start-up** **II) Sustainable Business Model Transformation** **III) Sustainable Business Model Diversification** **IV) Sustainable Business Model Acquisition** [How can firms innovate for a sustainable business model?] 1\) The development of entirely **new** business models 2\) The **transformation** from one business model to another 3\) The **diversification** of new business models 4\) The **acquisition** of sustainable business models **I) Sustainable Start-ups** **Start-up Strategy** - [Creation of a **completely new organization**] - Based on sustainable business model **key features:** - [Sustainable value] - [Pro-active multi-stakeholder management] - [Long-term perspective] **Advantages:** it could be that the product hit the demand, could be very innovative, you are a completely new organization so you could be more adaptable to the new business requirements, you don't have very strict organizational boundaries. The employees are very motivated because they want to stay longer and work a lot because they want the product to succeed, this can be very helpful. **Challenges:** you need to establish yourself, it's resource intensive because you must build your business model from scratch, it takes money and time. You'll need founding and time to find partners, sometimes you have to have high prices, so you need to understand how to become profitable. **Example: Oatly** Potentially very difficult to enter the market in Sweden (very big dairy consumption in Sweden, as Skyr) but now very successful, they have the maximum nutritional value and lowest environmental impact, took them a long time to hit the market. **II) Sustainable Business Model Transformation** **Transformation Strategy** - Transformation of the **current** business model - **Adapting or reinventing** existing business model components in line with sustainability principles resulting in a sustainable business model **Challenges**: very high financial investments, also regarding human resources, transformation requires money. What's even more difficult is what regards the costumers, because costumers have a specific image of you, so it might be required that you invest a lot in marketing. You don't want them to lose trust in you, they could move into a new market. **Advantages:** already existing market share and customers, what helps them is that they already have a market share, not as the startups, as a business you can rely on your customers but you have to make sure that they will be kept once you transform. **Example: Patagonia** They didn't transform all at once, it's still ongoing (step by step). Very good example, transformation is just not a one-time thing, it's a continuous process. If business don't want to transform but completely change -- Diversification Strategy **III) Sustainable Business Model Diversification** **Diversification Strategy** - Diversification within the boundaries of an **existing organization** - Current business model stays in place - **Additional, sustainable business** **model** is established Happening in between the organization, in an already existing company. **Advantages:** it's helpful that business can share resources and use those for their sustainable business model. You could adapt specific parts of an existing product to focus on a different/new customer group. **Challenges:** If the strategy happens in an existing organization, you are likely to target very similar customers, you should ask yourself if the customers trust the process, you need to understand how to communicate the diversification. **Example: BMW** **IV) Sustainable Business Model Acquisition** Sometimes companies don't wat to diversify or transform, acquisition is the addition of an external additional business model, which makes their portfolio more attractive, it's trustworthy. **Acquisition Strategy** - Identification, acquisition and integration of an additional, external sustainable business model - Company lacks the capacity or time to develop an innovation from scratch If companies lack the capacity of time to transform or born from scratch, it's the solution. **Advantages:** You save time financially, resources, you can increase your market share, you may be in an existing product category (same as yours), you may keep the sustainability acquiring an existent sustainable business model. **Challenges:** It's not very easy, requires a lot of investments and you have to build trust for the customers, lot of engagement for the transformation. **Example: The acquisition of the body shop** A. Technological Transformation B. Social Transformation C. Organizational Transformation A. **Technological Transformation** 1. Example: Lean Manufacturing (it's about doing more with your resources and less waste, not just the environmental pov but also what regards all the step that a company could potentially reduce and be more efficient). Maybe this needs a reduction of business partners, focusing on a few but having long-term relationships (more focus on sustainable value, you often reduce the costs of the production, you use less resources, you have long term relationships, this is how you capture this value). You maximize efficiency, minimize waste, use waste for new or existing products in service or production processes instead of throwing it away. 2. Sometimes is very difficult to recycle, so as a company you could think of using the waste to create a new product, create value from waste. 3. How can technology help you to have sustainable and renewable processes? For example, businesses use solar panels to provide themselves with electricity. B. **Social Transformation** 4. Example of BMW: car sharing service offers a sustainable method of using a car without having to buy one, cheaper for customers, going from offering a manufactured product to going to offer a combination of a shared product and services -- sharing economy instead of ownership. Providing an alternative to have ownership over a product, offering a product that has a longer life span. You may have larger market share, it's a social transformation because it educates customers to minimize waste. 5. How can you provide well-being to your stakeholders? Implementing specific incentives or certificates in business models, might help them to have better working condition, wage, life condition. Example: agriculture (less pesticides, diversifying the products, well-being of soil). 6. You may produce less, wasting less, producing what you need, you could put a premium price on the product (capture customer). Limited availability increase desire by costumers. C. **Organisational Transformations for SBM-I** 7. "tapping into the previously ignored markets of the economically most disadvantaged: the billions at the base of the economic pyramid. " What changes can be done within the firm. It's a huge market. And if you as a company think about rebranding for society you could do that. How can I repurpose my business for society. **Example : Unilever- The Shakti-Project** 8. It's about thinking that maybe I already have a component in my business that support sustainability but it's very little, in order to transform into a sustainable business model, you have to have a scale up solution. You are lacking the initiative to really enter and hit the market, you could create open innovation options (connecting with other networks, using the right channels). To achieve these benefits, sustainable business model innovation might require a fundamental shift on the strategic, top-management level. **Top management team diversity** and **university-industry collaboration.** 15.01.2025 **Session 3: sustainability dilemmas** 1. *History of business dilemmas in sustainability* What is a dilemma? A dilemma is a situation in which a choice must be made between two or more competing, often equally undesirable, alternatives. Characteristics: - Involves a conflict of values or priorities (e.g. financial vs ethical) - No perfect solution, each option has trade-offs - Requires decision-making under uncertainty and pressure Business context: - Ethical dilemmas: Balancing profit with social responsibility (e.g., environmental concerns vs. cost-saving measures) - Strategic dilemmas: Choosing between long-term investments or short-term profitability - Operational dilemmas: Allocating limited resources among competing priorities (e.g., R&D vs. marketing) Real-life example: A company choosing between implementing costly environmental measures to meet sustainability goals or risking reputational damage by ignoring them. **Example 1: Volkswagen's Dieselgate** - VW: in 2014, before the emissions scandal, VW was a global automotive giant and one of the world's biggest companies: § 590,000 employees, sales of €202.5bn - VW claimed they re-designed diesel cars that would meet the US' pollution laws (Clean Air Act) - But: VW engineers had designed 'defeat devices' which ensured that the vehicles passed the regulatory, lab-based emissions tests -- which did not hold on the road - In 2015: scandal: VW cheating vehicle emissions through manipulation of software in 11 million cars worldwide. - The fault did not lie with a few engineers but was a larger conspiracy involving senior figures and extensive attempts to cover up the wrongdoing -Cost: \$25 billion (damages and fines); and incalculable loss of life (\$39bn) -Drop in share of European car market -50% drop in share price -Resignation of Martin Winterkorn, Chief Executive of US Division -Arrest of Rupert Stadler, Audi CEO - Nitrogen oxides (NOx) are known pollutants that contribute to air pollution. Exposure to NOx can cause respiratory diseases, cardiovascular issues, and premature death, particularly among vulnerable populations (e.g., children, elderly, and people with pre-existing conditions) - Higher NOx emissions from VW vehicles resulted in increased air pollution, leading to excess mortality globally - Several studies quantified the damage caused: 1\. Research estimated thousands of premature deaths were attributable to the excess NOx emissions released by VW diesel vehicles 2\. In Europe and the U.S., these emissions significantly worsened air quality, indirectly impacting public health over years **Example 2: Erin Brockovich vs. PG&E** - 1993: Legal clerk Erin Brockovich investigates groundwater contamination in Hinkley, California - Pacific Gas and Electric (PG&E) responsible for leaking hexavalent chromium (Cr-6), a toxic chemical, into local water - Residents experienced cancer, birth defects, and other severe illnesses linked to Cr-6 exposure - Profit: PG&E sought cost savings by improperly handling Cr-6 waste - Long-term damage to public health and the environment highlighted the true cost of unethical practices - 1996: PG&E settled for \$333 million (largest U.S. settlement at the time) **Examples of other forms of misconduct: Ford Pinto** - Ford Pinto: designed in the 1970s, cheap and compact car - Poorly designed fuel tanks: made the car prone to catching fire when hit from behind - Pinto crashes: led to death of estimated 500-900 people - Ford failed numerous safety inspections and knew that the car was likely to catch fire - Cost-benefit analysis: the redesign would be more expensive than paying the lawsuits that would occur with the accidents - First corporation in history charged with homicide, due to Ford's "callous indifference to public safety" - Failure: driven by a utilitarian, business case management of the response to accidents **Opioid crisis**: Johnson & Johnson was the first company convicted for intentional overselling of the benefits of opioids. There are now over 2,600 lawsuits in process related to the sale of opioids in the US. **Boeing case**: two fatal crashes of the 737 Max aircraft. Internal documents show that the company cut corners in a rush to market. CEO has now resigned. **\#MeToo**: social media campaign highlighted the pervasiveness of sexual harassment in businesses (especially entertainment). 2. *Decision-making and companies: What makes good people do bad things?* How does context affect our decision? An experiment You are a project manager in a clothing manufacturer. Your job is to help the sales team to assess whether the company can meet a potential order, by checking the availability and cost of materials and manufacturing time. You are aware that the fashion industry is one of the most polluting in the world. One significant cause of this pollution is the chemicals used in the manufacture of fabrics. You have just been asked to make a proposal for a big order from a major retailer. They need you to make a garment using a very specific type of material. You have looked around, and there is only one supplier that can provide the specified material in the timeframe. You have not worked with this supplier before, and do not know much about their environmental track record, or whether they have used unsuitable chemicals to manufacture the material you want to use. You can arrange to test the materials to see what chemical treatments have been used. This will cause a delay of a couple of days (while the materials are at the lab), and it will incur a cost to your business. Ask yourself: will you order the lab tests on the materials? New information: from your customer While you are deciding whether to order the lab tests, you do a bit of reading in the trade newspaper. You find out that your potential customer is launching a new programme to improve the environmental performance of their shops, and that they are starting with a big publicity campaign. This makes no difference to the cost or timing of the lab tests. Do you decide to run the tests? New information: about your competitor While you are deciding whether to order the lab tests, you hear some gossip from someone else who works in the industry, and who you know to be well-informed and reliable. They tell you that there is another company very interested in the material, and they are likely to make an offer for it in the next 24 hours, so that they can win the order from your potential customer. This makes no difference to the cost or timing of the lab tests. Do you decide to run the tests? New information: from your colleague Feeling confused about whether or not to order the test, you approach a more experienced colleague whose opinion you respect, to ask what they would do. Your colleague says they don't know about this specific supplier's environmental performance. They comment that in the past it has been useful to run the lab tests, and that they can imagine that it will become company policy to do this sometime in the next year or so. Do you order the tests? New information: from the HR department While you are deciding whether to order the lab tests, you receive a memo from the HR department. The memo says that the company is holding the annual compensation and bonus review. You realize that if the company wins this order, you will earn a considerably higher bonus this year. To do this, you need to make sure that you complete your cost estimates urgently so that the project can be included in the year end results. Do you decide to run the tests? Which of these -- if any -- influenced your decision? Contextual factors that can influence decisions Immagine che contiene testo, schermata, Carattere, design Descrizione generata automaticamente 3. *Attempts to influence the public opinion* **An example: Climate Disinformation at Exxon** - Scientists working for the fossil fuel industry knew about the potential warming effects of CO2 emissions as early as the 1950s - Between 1996 and 1998, for instance, Mobil ran 12 advertorials timed with the 1997 UN Kyoto negotiations that questioned whether the climate crisis is real and human-made and ten that downplayed its seriousness. "Reset the alarm," one ad suggested. "Let's not rush to a decision at Kyoto... We still don't know what role man-made greenhouse gases might play in warming the planet." - Since 1998 -- after the Kyoto Protocol was launched Exxon has spent at least \$33m in climate disinformation (Exxonsecrets.org database by Greenpeace) - Exxon's strategy: "emphasize the uncertainty in scientific conclusions" about the climate crisis  Immagine che contiene testo, Carattere, schermata, documento Descrizione generata automaticamente Climate denial and misinformation - Global Climate Coalition -- group for utility, oil, coal, mining, railroad and car companies: 1997 ad against Kyoto negotiations, part of \$13m campaign that led President Bush to reject the Kyoto Protocol - Exxon strategy: "Put emphasis on costs/political realities" (1989 Exxon memo) - This still continues today: in the run-up to the 2018-20 US midterm and presidential elections, ExxonMobil spent more on political advertising on social media than any other company in the world (except Facebook itself) - Germany: Amid economic challenges, public and political focus on environmental goals, such as the energy transition (Energiewende), often shifts toward economic concerns. For example, during the recent energy crisis and inflationary pressures, debates about slowing down the coal phase-out or relaxing emissions targets have gained traction, reflecting a dilemma between economic stability and climate goals Aggressive positive positioning of petroleum Awareness for climate change is different today When you cannot deny the existence -- shift the blame - 2004-2006 BP marketing campaign spent over \$100 million a year - Carbon emission as 'lifestyle choice' of individuals - "It's not us, it's you!" -- Shift in responsibility onto individuals, emphasizing demand over production - Today: Their strategy emphasizes an 'it's and not or' solution to energy transition (following an 'all of the above' campaign) Adaptation to the zeitgeist - \"All of the Above\" Campaign: This strategy highlighted BP\'s commitment to a diverse energy mix, encompassing both traditional fossil fuels and renewable energy sources. The campaign emphasized energy diversity, featuring a set of energy icons to represent various energy forms. An interactive tool, the Energy Lab, was launched to help consumers explore greener lifestyle choices using all energy types. - \"It\'s and not or\" Approach: In this more recent strategy, BP underscores the necessity of investing in both current energy systems (mainly oil and gas) and future low-carbon technologies. The company announced plans to invest up to \$8 billion more into its transition growth engines--- bioenergy, convenience, EV charging, hydrogen, and renewables and power---by 2030, aiming for a balanced energy system that delivers secure, affordable, and lower carbon energy. 4. *Greenwashing* **The Green Deception: How color psychology drives consumer perception** - The use of the color green in branding and marketing has become a powerful tool for companies to create perceptions of environmental responsibility, often regardless of their actual sustainability practices - Research by Parguel et al. (2015) found that simply incorporating green-hued imagery in advertising led consumers to perceive brands as more environmentally friendly, even without any substantive environmental claims - This psychological manipulation, known as \"greenwashing,\" exploits what Schmuck et al. (2018) identified as humans\' innate positive associations with the color green and its connections to nature - The effectiveness of this strategy is concerning, as Chen and Chang (2013) demonstrated that 78% of consumers in their study were influenced by green-colored packaging when making purchasing decisions, despite the color having no correlation with actual environmental impact **Definition of "Greenwashing"** - Definition of Greenwashing: "Greenwashing is the act of misleading consumers regarding the environmental practices of a company or the environmental benefits of a product or service." (TerraChoice) - Oxford Dictionary: "Disinformation disseminated by an organization so as to present an environmentally responsible public image; a public image of environmental responsibility promulgated by or for an organization etc. but perceived as being unfounded or intentionally misleading." (10th Edition) - First use of the word 'greenwashing': in 1986, Jay Westerveld-- an American environmentalist -- coined the term 'corporate greenwash' to describe a resort's 'towel reuse' campaign to 'save the environment' in Beachcomber island in Fiji - a way of distracting attention away from the hotel's plans to expand into fragile coral reef habitats. **Prevalence of 'Greenwashing'** - 58% of C-suite executives admitted their own company has engaged in corporate greenwash (72% in North America) - 2022 survey by the Harris Poll, based on 1419 C-suite executives at global corporations - 43% of employees thought their company was guilty of greenwashing (2022 Advanced Trends Report) - 34% of customers trust the brands they purchase (2019 Edelman Trust Barometer) - In 2010, TerraChoice report found 95% of green products were marketed via false green claims - 2021 report by the European Commission: 42% of green claims were exaggerated, false, or deceptive. 59% of cases had no easily accessible evidence to support the claim In over 50% of cases, the company could not provide sufficient information for consumers to assess the accuracy of the claim made **The 7 Sins of Greenwashing** Immagine che contiene testo, cerchio, Carattere, schermata Descrizione generata automaticamente  **The design of Greenwashing ads: Misleading elements** - Strategic Color Usage: Predominant use of green and blue tones Natural color gradients in backgrounds Earth-toned color palettes that evoke nature - Nature-Based Imagery Incorporation of leaf motifs and natural elements Backgrounds featuring landscapes (mountains, forests, oceans) Images of endangered species or wildlife Visual representations of renewable energy sources - Typography & Layout Clean, sans-serif fonts for a modern, fresh appearance Natural elements integrated into letters (e.g., leaves as dots over \'i\'s) Strategic emphasis on eco-friendly claims and statistics De-emphasis of less favorable information through smaller fonts - Trust Indicators Environmental certification stamps and badges Logos of environmental organizations \"Natural\" or \"eco\" seals of approval **Example: H&M's Conscious Collection** H&M Conscious Collection: marketed for the environmentally aware consumer. Yet, a 2021 report by the Changing Markets Foundation found 96% of H&M's claims were misleading. The claims made were vague. What does a conscious collection mean? "H&M's Conscious Collection actually contains a higher percentage of synthetics than its main collection, standing at 72% versus 61% respectively. Similarly, 57% of the garments in the Conscious Collection use polyester, in contrast to 52% of the H&M main collection." **Greenwashing regulation** EU: 2024 Ban on Greenwashing (Green Claims Directive): Companies will no longer be able to call products 'natural', 'biodegradable' or 'climate neutral' without certified proof. In the UK: FCA Anti-Greenwashing Rule (May 2024) part of Sustainability Disclosure Requirements Their Financial Lives Survey (2022) shows 74% of adults agreed that environmental issues are really important to them; 79% agreed that businesses have a wider social responsibility than making a profit **Potential negative impact of Greenwashing** Brand Reputation & Loss of consumer trust: Only 34% of consumers trust the brands they buy or use (Edelman Trust Barometer 2019) - 81% of consumers state that a lack of trust could be a deal-breaker in their purchasing conditions (ibid) Investment risk Stifles progress: Hampers system change and sustainability which will incur real costs for companies Legal repercussions FTC's Green Guides; EU's Ban on Greenwashing E.g. Honda: settled class action suit for false claims on fuel efficiency of hybrid cars Financial cost E.g. Volkswagen 22.01.2025 **Session 4: Circular Business Models** **Circular economy** The Principles of Circular Economy and the Circular Business Model trying to eliminate the previous concept of linear economy, where not everything is recycled. In the circular economy we have the value circle, that means that the product or materials are kept in the production line as long as possible. They want to revive the business using waste. Usually tries to transform the value chains and not stop them (circular concept). Tries to reach a positive impact with their business, net positivity. In circular economy we eliminate the waste at the end, introducing loops. The business might introduce even smaller loops if they decide to resell the product, use for other customers or markets. Definitions of circular business models (both talk about introducing loops): 1) Business models that are suited for the Circular Economy by incorporating elements that **slow, narrow, and close resource loops**, so that the resource input into the organization and its value network is decreased and emission leakage out of the system is minimized. 2) A business model in which the conceptual logic for value creation is based on **utilizing economic value retained in products after use in the production of new offerings**. Thus, a circular business model implies a **return flow to the producer from users**, though there can be intermediaries between the two parties. 2. **[Transforming the Loop for Circularity]** Transforming the Loop for Circularity**,** 5 Types of Loop transformation for Business Models **1^st^ Closing loops** The resources are recovered from the waste. What the company could do for example for non-recyclable waste could be use it to produce heat, that is better than just disposing in in the land field. **Hierarchy of Waste** Downcycle, when companies use the product to produce smth with a lower value than the original. Upcycle, when you use the product to produce smth with a higher quality and value. **[Closing the Loop - Upcycling: The Upcycle Project]** (about putting materials back into the cycle or recover them to maintain their high value, resource recovery) - Focusing on the **end stages** of the lifecycle - **Returning materials** back into the cycle - Ideally, recovered material is used in a way that **maintains** **highest possible value** (i.e. upcycling) - Resource recovery is **most common among firms** as it requires minimal adaptions of business model - Resources shortages will amplify resource recovery actions Upcycling is especially popular for fabric and garments. Many companies upcycle fabric to create new fashion items. **2^nd^ Slowing loops** After closing the loop they think about slowing the loop that means trying to use the resources for a longer time. - Purposeful **extension of usage** through **design considerations, repairs, upgrades or resale** on secondary markets - Applied **during or at the end of first product use** - No granular change of business model necessary but rather an **extension of** **business capabilities** - Product use extensions can create additional touch points with customers **3^rd^ Narrowing Loops** Companies can think from the beginning of using inputs that are more sustainable, for example solar panels is a way to have a sustainable input (Example Google Campus in USA using solar panels on the roof) - **Phasing out the use of "linear**" resources by **using circular alternatives.** - Examples are: Renewable energy, Innovative material that is circular but also fulfills requirements for functionality, usability, feasibility and cost. **4^th^ Intensifying Loops** sharing concepts (products or resource used more often) Sharing platforms can encourage the circularity principles, important for companies - Utilization of products is optimized through **shared** **ownership, access, and** **usage** typically enabled by technology - Sharing platforms are flourishing and boosting circularity principles - **Attractive for business-to- business companies** that maintain high-costs assets with low utilization rate - Requires substantial investment in business model adaptations - Companies retain ownership of product and sell benefits on a service basis while being responsible for maintenance and end-of-use - Fundamental change in companies value proposition - Early-stage firms face less difficulties in implementation than large corporations - Can work well for premium goods that are not easily affordable - Requires adjusting financial expectations 3. **[Benefits & Challenges of Circular Business Models]** They might be able to reflect the efforts into new price strategies, they could increase the price that could increase the revenue. They need to have a very loyal and large customer base. It might support branding efforts and attract customers because the company signals are trying to embrace efforts that lead to resources for the ecosystem and for everyone involved in the production chain. They can even find new sources of revenue. When is it possible to transform the loop? **Benefits of Circular Business Models (Who the benefit is directed to)** **Challenges of Accelerating Circular Business Models** Circularity especially when talking about technological product requires a lot of knowledge. Sometimes is very difficult to ensure the quality of the returned product, can be concernd about the consistency of flow of returned goods. On the employee level companies might face challenges, hard to get a commitment from them. 29.01.2025 **[Session 5 : Digital and Sustainable Business Models]** 1. **The "Twin Transition" towards Digital Sustainable Business Models** **[Implementing Digital Transformation & Sustainable Development]** Firms want to transform and perform a double transformation to integrate digital technology and sustainable value in their business, if they succeed in that it's called twin transition. The "Twin Transition" Drastic reduction in natural resources and stakeholder demands for lower emissions and pollution urge firms to transform their business model for sustainable development Coupled with digital transformation efforts, firms face **two transformation requirements simultaneously**: the digital transformation and the sustainable transformation This "double" transformation is called **"twin transition"** (European Commission 2024) The twin transition emphasizes the role of digital technologies in driving sustainable transformations The dual focus acknowledges that business success and resilience increasingly depend on integrating digital technologies with sustainable practices. When we talk about using digital technology in business transformation we talk about digital sustainability Digital sustainability is the sum of organizational activities that seek to **advance the sustainable development goals** through creative **deployment of technologies** that create, use, transmit, or source electronic data. Technologies used to establish circularity values for example used to slow, narrow, close the resource loops in a company. **[Digital Sustainable Business Model:]** Creating, delivering and capturing sustainable value by leveraging on digital technologies **[Defining Digital Sustainable Business Models]** A digital-sustainable business model **uses technologies that create, use, transmit, or source electronic data** in its value proposition, value creation and delivery processes, and/or its value capture mechanisms to advance **sustainable development in economic, social, and/or environmental terms**'. 2. **Navigating the Transition towards Digital Sustainable Business Models** **Navigating the „Twin Transition" towards DSBMs (4 strategic approaches)** With this matrix, companies can assess their current position, identify gaps, and strategize on moving towards the Twin Transformers quadrant, which aligns with both digital transformation and sustainable value creation. Keep in mind these metrics High digital component and also high sustainable integration twin tranformers **Twin Transformers Successful digital sustainable business models** Twin Transformers are... At the forefront of embracing both digital and sustainable innovations Firms that leverage the synergistic potential of digital technologies to drive sustainability goals and vice versa Firms that may use big data to optimize resource management, employ digital platforms to foster circular economy models Well-positioned to lead in resilience, competitiveness, and stakeholder trust, their performance is not at risk if something external cause change. Might hold a very good image among customers, good relationships with stakeholders. Firms that set new industry standards for the future **Digital Innovators (low focus on sustainability but strong one on digital transformation).** Digital Innovators are... Firms that have heavily invested in digital technologies to enhance efficiency, customer experience and innovation (IoT, AI, blockchain) Firms that carry a low focus on sustainability but lead in digital transformation Have an underdeveloped focus on sustainability that could harm viability and operability in the future due to necessities for ESG criteria. Not leading to sustainability will have negative impacts in the future. The technology used already should enhance sustainability. **Traditionalists** Traditionalists are... Firms that operate with minimal changes to conventional practices and have yet to integrate technologies or sustainability into their core operations Firms that operate in sectors with low regulatory pressure for sustainability and low market demand for digital and sustainable practice Firms that face increasing risks of obsolescence or regulatory non-compliance over time Often advised that the dual effort should be done simultaneously, but it's quite difficult because it requires a lot a financial investment but also knowledge, even for example training employees. They need expertise form the outside. **Sustainable Pioneers** (they could be startups for example that have a very strong focus on sustainability but they might face some challenges such as having and acquiring a large market share), they should invest in technology to enhance their impact on sustainability. For example, they could implement mobile technology to reach more customers. Sustainable Pioneers are... Firms that have a strong sustainability commitment and integrate social and environmental value in core business mode. Firms that do not yet use digital technologies to amplify their impact Leaders in corporate responsibility and sustainable innovation but may risk not being efficient in comparison to competitors 3. **Digital Sustainable Business Model Archetypes** **Digital Sustainable Business Models in Entrepreneurial Settings** **Four archetypes of digital sustainable business models** 1. **Sustainable Software Solutions** Sustainable software solutions are **software platforms** or layers to **solve ecological-related problems for customers** They can improve the sustainability of a specific element in the value creation **Examples** 2. **Sustainable Product-Service Systems** The company itself propose the sustainable value to the product, they present it directly to the customer. Sustainable Product-Service Systems are **physical products enhanced by a digital complement**, such as mobile apps, to optimise the ecological sustainability of product use They improve the sustainability of the core product/service itself 3. **Sustainability Intelligence** Sustainability Intelligence business models **combine data analytics with sustainability** science to **provide transparency** for companies\' ecological sustainability assessment and sustainable decision making These type of businesses can identify new sustainability improvement opportunities in the value-creation process. They might not have the capability to invest that much in sustainable practices. Examples about providing intelligence solutions to provide sustainability metrics etc. 4. **Digital Sustainable Platforms** Digital sustainable platforms create **multi-side markets** that **facilitate ecological sustainable value co-creation** with complementors, such as circularity, creating sustainable value networks Digital sustainable platforms engage in value co creation to improve the sustainability of the product life cycle. Their joint activity is what leads to sustainable value **Example** **Two Sides of the Coin** **Ethical challenges of exponential technologies questions sustainable practices** The use of exponential technology requires businesses to anticipate ethical and moral dilemmas to ensure equity, equality and social cohesion: Security: What do we use AI for and how do we protect access to AI from bad actors? Power & Control: Who will use AI predominantly? Who decides how to deploy AI? Liability: Who is responsible for Artificial Intelligence? Bias: How do we ensure that AI does not discriminate certain ethnic groups or genders?