There are now a rash of sustainable business models — sharing economy, eco-design, circular economy and many others — all with their good points and their fifteen minutes of fame. Even if companies have good products and a thorough understanding of their customers’ needs, using the wrong business model means not all of them succeed in achieving their sustainability business goals.
Know What Your Hotspots Are
Why do they fail? Actually, the reason is simple. Companies often don’t objectively determine where their hotspots for improvement — where their impact is largest — are, even though that determines which business model will work best for them. For example, if your impact is biggest at the end of life of your product, a circular business model will work for you. If your hotspot in the use phase, however, it won’t make a big sustainability difference to embrace a circular business model. Companies such as Unilever and Interface realized how important is to be aware of their company hotspots throughout a product’s life cycle, and have successfully implemented that into their business models accordingly.
Sound Approach Needed to Gather Insight
Gaining valuable insights is only possible with a methodologically sound approach. Materiality assessments carry the risk that you’ll be influenced by what others find important instead of looking objectively at where your biggest impact is. One of the most accepted and proven methodologies is life cycle analysis (LCA), successfully used in sustainability for the last 20 years. In recent years, however, it hasn’t been as widely used as the standard approach. Sustainability professionals may have felt that it focused too much on scientific progress and methodology and not enough on benefits for businesses.
However, as Unilever and Interface show, LCA is still is a powerful tool. Life cycle thinking helps you identify your hotspots, as it shows how much each phase — from the extraction of raw materials right up to the end of life — contributes to your total impact. Those metrics and insights can also help you pinpoint who in your business ecosystem you can collaborate with to become more efficient and co-create new, sustainable products or services.
Tackle the Trade-off
Before choosing your sustainable business model, you will need to understand multiple environmental impacts. Focusing on only one aspect might — unintentionally — create undesirable results. For instance, reducing CO2 emissions might lead to an increase in particulate matter, as is the case with some new car engines. This trade-off can make the overall impact on the environment worse, even though the car meets carbon-reduction targets.
You can only make deliberate choices if you have a complete overview of your product’s impact on multiple indicators in your system. These systemic insights can be generated with an LCA based on public data from databases such as ecoinvent or company-specific data collected throughout the supply chain.
Relevant Business Models Per Stage
How this proven methodology can be linked to the latest developments in sustainability? Inspired by the general principles of LCA and a study of Chun and Lee at Ajou University in Korea, we connected the dots between life cycle stages and some of the most popular sustainable business models to show how they can contribute to improving your impact.
Understanding your total impact in each of these life cycle stages helps you select what kind of sustainable business model would best help your company achieve your sustainability goals.
If you have a car lease company, it doesn’t make sense to look into the circular economy, whereas when you’re a producer of electronics or plastics, it does make sense to have a waste strategy and close the loop. For a services firm, the situation may be completely different, leading you to focus on a collaborative business model to crowdsource your services.
Rich Source for Business Model Innovation
Of course, this list is not exhaustive — it doesn’t cover the social aspects of sustainability, for instance. But it is a good place to start, and might even spur ideas about additional sustainable models. And that shows exactly how powerful life cycle thinking is when applied in a pragmatic way that takes your business perspective into account: It gives you new insights and ideas about how you can innovate your business model and truly become a more sustainable company.