Our recently released research, Sustainability Incorporated: Integrating Sustainability into Business, calls out the need for business to further embed sustainability into its core strategies.
It highlights five pathways to more deeply integrate sustainability into business: employing business model thinking, putting materiality to use, applying a sustainability lens to products and services, tapping into culture, and leveraging transparency. In the first of a five-part series to explore these pathways, we focus on the first one, employing business model thinking.
While many companies claim that sustainability is embedded in their DNA, very few have truly integrated environmental and social considerations into their decision-making processes and core strategies. Many strategies are still centered on creating financial value while sustainability initiatives remain in a programmatic silo, separate from core business strategies.
To address today’s pressing global challenges, sustainability must be embedded into the core business. One way that companies such as AstraZeneca, Fibria (PDF) and Novelis are working to break sustainability out of its silo is by exploring how the business creates value; in other words, employing business model thinking. These three companies have all created business model diagrams and shared them externally in their reporting.
Business models can be described as “the fundamental structures for how companies create, deliver and capture value.” Understanding how the business creates social, environmental and financial value can provide increased clarity into the company’s value proposition and purpose. Knowledge of the business model also enables greater awareness of how and where sustainability can be more deeply embedded in the company.
One way to foster business model thinking across the company is to engage cross-functional colleagues in the process of creating a map or illustration of the business model. Business model mapping is closely related to value chain mapping and in both cases the key is to understand exactly how the business generates financial and non-financial value, as we noted in our 2014 research on business model innovation, Model Behavior: 20 Business Model Innovations for Sustainability.
One company that has conducted this business model mapping process is Fibria, the world’s largest pulp producer, based in Brazil. Fibria first shared an illustration of its business model externally in its 2012 integrated report.
Cristiano de Oliveira, a consultant at Fibria, describes the value of creating a business model map: “Mapping our business model helped us internally understand what sustainability means for Fibria and for each department and how our financial and nonfinancial variables relate to each other.” Fibria’s diagram shows where the company’s positive and negative impacts lie as well as how its material issues and strategic priorities play out across its business.
Understanding a company’s business model positions that company to successfully integrate sustainability into the core of the business. Other benefits of business model mapping include:
- Aligning the language used across the business’ various departments
- Revealing areas where sustainability is already integrated
- Generating new insights into how and where sustainability has the highest potential to be further integrated into the company’s operations
- Communicating how the company creates environmental, social and financial value externally
Despite the benefits of business model thinking, our work with sustainability practitioners revealed how few of them have actually taken this step; studies show that between 60 percent and 85 percent of most firms’ employees do not know or understand their organization’s strategy, including its business model.
These statistics are in part due to the challenging nature of business model mapping for large companies with complex or multiple business models. For businesses with multiple models, we advise focusing on mapping one business model or one division as a useful starting point.
For all sizes and structures of companies, a variety of tools help teams map their business models, such as the business model canvas developed by business theorist Alex Osterwalder and professor Yves Pigneur, or value chain mapping exercises that focus on visualizing points of transaction in the company’s business.
For companies large and small, undergoing the process of business model mapping presents an opportunity to increase sustainability impact and innovation. Understanding the ways in which your company creates value may reveal the areas in which you can have the most impact as a sustainability practitioner.