1.12 Business models
Calls for eco-innovation, and particularly system-level change, are central to calls for greener economies, but there is still considerable uncertainty about whether eco-innovation can and will deliver improvements. In part, much depends on the extent to which existing and future business models can support environmental improvements (for a detailed review, see Schaltegger et al., 2011).
A 2013 article in The Guardian newspaper titled ‘Wanted: truly innovative sustainable business models’ summarised some of the issues associated with innovation and related business models (Whisnant, 2013). The article is worth a read if you have time, but the main points reinforce the idea that technological innovation is, of itself, not enough to bring about significant changes in organisational practices or more sustainable economies and societies. This is because many existing business models are reliant on mispricing or undervaluing resources and environmentally damaging activities. In the light bulb example discussed earlier, the toxicity of some of the materials and metals used in CFLs is ‘undervalued’ and thus CFLs are cheaper and also promoted as ‘green’.
Reading 4 OECD, 2012, pp. 4–11
Approximate reading time: 20 minutes
This kind of undervaluing or mispricing is raised as a concern by the Organisation for Economic Co-operation and Development (OECD) in a paper on eco-innovation titled ‘The Future of Eco-innovation: The Role of Business Models in Green Transformation [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] ’ (OECD, 2012).
Read from Section 2.2 ‘Eco-innovation and business models’ on page 4 to the end of Section 3.5 ‘Role of enabling technologies and infrastructures’ on page 11.
Activity 12 Changes to business models
From the sections you've read, identify the main concerns about existing business models, and any changes to business models that the OECD paper says are necessary for eco-innovation to develop.
Provide your answer...
The main concerns about existing business models include:
- propensity for gradual rather than fundamental, radical changes
- aversion to risk and uncertainty
- environmental sustainability rarely part of the core values of business models.
The authors note a range of internal and external barriers to changing business models, including:
- traditional mindsets on business models
- lack of knowledge about sustainability issues
- insufficient understanding of alternative business models
- poor integration of different organisational structures
- lack of skills in research and development
- lack of market ‘pull’
- lack of capital for ‘risky’ investments
- lack of fit with existing organisations
- consumer acceptance, awareness and practices.
The main changes to business models considered necessary for eco-innovations to develop include:
- using enabling technologies, especially ICT, to help create systemic changes
- developing alliances with other organisations and stakeholders to enable win–win type opportunities
- moving to open, non-secretive communication with other organisations and stakeholders
- developing a sense of corporate social responsibility
- leadership commitment to implement eco-innovation.
The OECD report (and the article in The Guardian) suggests that new business models are required to bring about system-level change – a view which is explored next.