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Our Insights 24 Jan 2014

Business Model Innovation: Postcards from the Edge

By Melanie Colburn

Flickr image by emersonquinn

What will business look like in 2025 or 2050? How will successful corporations adapt to the mega trends stemming from the sustainability challenge?

These questions hint at a few of the implications of SustainAbility’s current think tank work. Earlier this month, we tested some ideas from our forthcoming paper on business model innovation, entitled Model Behavior, at a roundtable event in San Francisco. Attendees included representatives from B Lab, Gap, GlobeScan, Impact HUB Bay Area, Levi Strauss & Co, PG&E, Safeway, SAP, and Vodafone, among other organizations. (Quotes from the discussion included below are edited to provide anonymity, unless attribution was granted.)

Tell Me How to Move This Mountain

As one roundtable attendee attested, ‘The last time [my company] went through a business model transition it didn’t go so well—either for [the company] or [its stakeholders]—but we know business model innovation needs to happen.”

Given the apparent inflexibility and deeply rooted interests common at many large corporations, a common question that arose was, “Is it the role of a big company to develop the next solution or is it for start-ups starting from scratch?” Excitement, desire, and dread are all present when considering something as fundamental as redesigning the business model. But participants agreed that large corporations must decide if they are responsive enough to change direction mid-course.

The discussion often returned to the challenge of convincing a thriving company to change a business model that has been successful under prevailing conditions. Reflecting on innovative internal projects that died in vain, another attendee noted, “Innovation often starts at the brand level, but needs to work with the larger corporate structure to succeed.”

Successful Companies Don’t Necessarily Know How to Innovate; Innovation Can Come From All Directions

“The capacity to innovate does not necessarily ensure success,” suggested KoAnn Vikoren Skrzyniarz of Sustainable Brands. With that in mind, the conversation shifted to what companies need to know, and what information they need to provide internally, to drive experimentation with the business model. What evidence is necessary to bring about change and where would one find it? What mechanisms facilitate business model innovation? Several participants emphasized the need to listen to the market: it is critical to engage customers and gather data to shape the business model.

However, depending on which segment of the business model you seek to innovate around, the right data may or may not be readily available. One attendee noted that that while retail is a conducive environment to run an experiment and gather data with which to form a business case, experimentation in the supply chain is a different challenge. Other attendees sought to “unleash the power of employees, as pockets of informal innovation within the company.”

Companies can and need to create a tipping point to drive business model innovation: if customers are all flocking to the alternative model, the company will respond. Even Whole Foods, a company with 350 retail locations, over 62,000 employees, and $12 b. in revenue can transform to meet the changing needs of the landscape. For example, Whole Foods’ Local Producer Loan Program offers loans to small food labels that share its vision. Instead of waiting for these brands to become large enough to get to market, Whole Foods is taking on the challenge to scale these brands, thereby playing an active role in shaping the food ecosystem.

Grow Wings

A pithy exchange between Shana Rappaport of GreenBiz and Elizabeth Liedel of PG&E summarized the discussion. Taking the irreversible effects of climate change as the proverbial cliff, Shana pointed out that too often effort in the CSR field is about slowing down from 80 mph to 60mph: “We’ve slowed down but we’re still headed to that cliff.” Coining a phrase that resonated with the group and in the spirit of SustainAbility’s forthcoming paper, Elizabeth concluded, “Business model innovation is ‘How do we grow wings?’”

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