Business Modeling A book by A. Mosavi, & A. Delavar

Transcription

1 Business Modeling A book by A. Mosavi, & A. Delavar

2 Business Modeling Business Modeling Keywords: Business Modeling, Sustainable Development, Product Development Abstract: The aim of this book is to investigate the role of business models and to explore the potential of business modeling for sustainable development in particular. Further the focus would be narrower to the research on sustainable product development. Thus this book provides a broad revision to the literature on business models for sustainable development. Our literature review is mainly concerned with the business models which have been adapted by firms involved in product development or the researches related to product development. This book concludes that using business modeling in product development can empower sustainability and highly contribute in sustainable development.

3 III P a g e Business Modeling Preface Product development can be seen as a process from invention, design, planning, production, to service phases and customer relation. Product development is a multi-criteria and multidisciplinary topic. The multidisciplinary topics in product development include art, management, and engineering. From a primary idea to the manufacturing stage a product must be simulated and evaluated from different perspectives. In addition to the different fields of engineering involved a product may be required to be considered from aesthetic point of view. And many simulations and tests may be performed. Further marketing and customer relationship management, and supply chain management play important roles in the success of product development. Thus engineering firms should have the knowledge to generate new product ideas, evaluate these ideas and also manage the decisionmaking development process. While doing this, understanding the market, future analysis, economic analysis, uncertainties, sociology and

4 IV P a g e Business Modeling human behavior would be other possible criteria involved in the success of a product. With all these complexity involved in the business of the product development it is clear that product development is more than an engineering process. And with the complexity involved in today s competitive market in order to maintain profitability, the important factors of product development must be carefully considered by firms. The concept of business modeling provides a framework for product innovation. This book contributes to the idea of business modeling. The idea behind the concept of business modeling would be developing a visual business network within a firm instead of a product. This would provide the possibility to consider all the success factors involved in making value. Furthermore a business model would provide the possibility to easier consider the environmental and social factors in developing a product. It has been our assumption that using business models in product development would be beneficial in decision-making, highly contribute in sustainable development and would empower sustainability in firms. Yet

5 V P a g e Business Modeling conducting a literature review would provide a better understanding about the capability of business modeling for sustainability. Nonetheless the recent research shows the importance and beneficial of business modeling for progress and innovation in sustainable produce development. In this book the business models are going to be discussed as the important factors that can highly support cleaner products promoting sustainability. The book is about business model literature and the creation of benefits. From a strategy perspective business model innovation is an approach to design, implement and change business models to increase value and bring competitive advantage. With this book I hope the provided literature allows for developing further theoretical and empirical research in the field.

6 VI P a g e Business Modeling

7 VII P a g e Business Modeling

8 VIII P a g e Business Modeling TABLE OF CONTENT Preface... III TABLE OF FIGURES... X Abreviation Description... XII 1. Introduction Definitions Justification Research Purpose Outline of the book Theoretical Background Business Modeling and Sustainable Development Business models for product development Business Modeling Design of the Business Models... 31

9 IX P a g e Business Modeling 3.2 Literature Review on Business Modeling Business modeling for sustainable developement Literature Review Business models for sustainable development; requirements and barriers Business Modeling for Sustainable Product Development Conclusions and Future Works References... 83

10 X P a g e Business Modeling TABLE OF FIGURES Figure 1-1 Business model in a firm in connection with business functions according to Blanks (2013) [16] (self illustrated)... 5 Figure 1-2 Three pillars of sustainable development (illustration from [23])... 8 Figure 1-3 Illustration of the multidisciplinary research area of business modeling for sustainable product development (self generated image) Figure 2-1 Components of business model for product development (Osterwalder & Pigneur 2010); Business Model Canvas for Design of Business Models [45] Figure 3-1 Business model as the link between strategy and business process in the firm according to Seddon & Lewis (2003) [60] (self illustrated) Figure 3-2 The role of the business model in the firm [35] Figure 3-3 Business Layers according to Osterwalder (2004) [35] Figure 3-4 Business Model Canvas for Design of Business Models; Osterwalder and Pignuer (2010) s Standard Model [45]... 33

11 XI P a g e Business Modeling Figure 3-5 The Business Model Environment Template according to Kamprath & Van Den Broek [66] Figure 3-6 Business Model Vs. Technology from 1996 to 2005 (Osterwalder, et al. 2005) [13] Figure 4-1 Illustration of the multidisciplinary research area of business modeling for sustainable development (self made) Figure 4-2 Illustration of Eco-innovation business model innovation proposed by Rennings (2000) [100], and modified and updated by Lüdeke-Freund (2010) [80] Figure 4-3 Basic requirements for successfully developing sustainable business models according to Boons and Lüdeke [9] Figure 4-4 barriers in developing business models for sustainable development (Boons and Lüdeke) [9] Figure 4-5 left: introducing the multidisciplinary research field of business model for sustainable product development, vs. right: business model elements proposed by Wüstenhagen & Boehnke, (2008) [103] and modified by Lüdeke-Freund (2010) [80]... 74

12 XII P a g e Business Modeling Abreviation Description IT Information Technology ICT Information and Communication Technology IS Information Systems B-MET Business Model Environment Template

13 1 P a g e Business Modeling 1. Introduction We live in a competitive, uncertain economic environment. Today firms are highly challenged with the dynamic of the business environments. This makes business decisions complex. In order to deal with complexity of decision-making in firms, the concept of business modeling has become popular and handy (Stubbs & Cocklin, 2008) [1], [2]. However because of the today s business environments shaped by information and communications technologies (ICT), globalization and an increasing complexity and uncertainty leaves managers with difficult decisions to make. Consequently managers have been eager to be well informed what business models actually are and how they can be implemented in their business (Schaltegger et al., 2012) [3]. Today firms have to keep up with increasingly rapid "product to market" cycles. In addition they are faced with shorter product life cycles, new technologies, market uncertainties as well as global and competitive markets. According to Sommer (2012) in such business environment, in order to react to market changes, firms should be able to react fast and manage a very effective product development strategy [4].

14 2 P a g e Business Modeling Sommer (2012) believes that today s firms in order to be competitive and survive the have to also manage reliable supply chains, effective distribution channels, ICT implementations, and maintain strategic partnerships [4]. To doing so today firms need useful tools that allow them to understand, simulate, assess, and improve their business models. However the innovative tools that can help managers to facilitate complex decisions are still not well identified. Furthermore firms require better communication tools for improving internal (teams and employees) as well as external communication (customer relation) (Hockerts & Wüstenhagen 2010) [5]. Linder and Cantrell (2000) describe mainly managers have an intuitive understanding of how their businesses function. In the other words managers only intuitively know about the method that value is created [6]. This means that managers may not necessarily be able to present their business model clearly even though an intuitive understanding of the firm s business model could be available. Nevertheless the business model of a firm effects all decisions made within a firm. Yet if the business model is not clearly documented it

15 3 P a g e Business Modeling cannot be easily understood by the employees. Consequently it is essential to use innovative tools to easily understand and clearly communicate the business model. According to Linder and Cantrell (2000) such innovative tools will let them easily communicate the business model within the firm in order to secure further business opportunities [6]. Yet recent environmental, economical and financial worldwide crises have raised important attention to the importance of sustainable business models. According to Schaltegger & Burritt (2005) the concept of sustainability for business model refers to approaches dealing with environmental, social, and economical issues [7]. Kanashiro & Starik (2013) put it in the other worlds that sustainability in environmental, social, and economical issues in an integrated manner must transform firms toward sustainable development [8]. And sustainable development can only be happening within the limits of a sustainable ecosystem. Thus currently managers are challenged to participate in the idea of sustainability by exploring the innovative business models which profitable while maintaining positive environmental effects.

16 4 P a g e Business Modeling The researches conducted by Boons & Lüdeke-Freun (2013) and earlier by Hansen et al. (2009) show the growth of this new field of research [9], [10]. Furthermore, according to Sommer (2012) and Hockerts & Wüstenhagen (2010) the sustainable business models would be useful for existing firms for a transformation [4], [5]. In addition the entirely new business models invented by researchers would highly benefit. 1.1 Definitions The concept of business modeling for sustainable product development is the main concern of this book. Understanding this topic would require a broad understanding on the combination of three different concepts and research fields. These three concepts would be business modeling, sustainable development, and product development. In the following we provide definitions to these three concepts. Business Model, according to Johnson (2008), is defined to be the plan implemented by a firm to generate revenue and make a profit from operations including product development [11]. Debei & Avison (2010) explain that the business model is in fact an abstract representation of a firm s business strategy [12]. And Osterwalder et al. (2005) states that

17 5 P a g e Business Modeling Business Model is the description of profit making within a firm [13]. In the other words value proposition, and value architecture of a firm shapes the architecture of its business model. Product Costs Capabilitie Value configuration Business Model Distributio Management Partner Infrastructur Custome Revenue Figure 1-1 Business model in a firm in connection with business functions according to Blanks (2013) [16] (self illustrated)

18 6 P a g e Business Modeling In fact, business model presents how a company outsources the market and profits in regard to customers (Slywotzky 1996) [14]. On the other hand, Mayo & Brown (1999) seen business model as the design of an interdependent systems that create a competitive business strategy [15]. Further Sawy & Pereira (2013) state that the business model includes different components and functions of the business [52]. Functions of the business depends of the type of business may include product, distribution, costs, value configuration, management, competencies, infrastructure, pertner network, target customer, revenue, core capabilities. According to Blanks (2013) following figure describes the business model of firm in relation with the main business functions including product development, cost, distribution, etc. [16]. Sustainable development refers to the process of development that is conducted without threaten of natural resources [17]. In the other words an economic development is a process for meeting human development goals while maintaining the ability of natural systems to regenerate [53]. Yet Daly (1990) suggests that development may have

19 7 P a g e Business Modeling different dimension including ecology, environment, agriculture, energy, transportation, economics, business, income, politics, and culture [18]. Brundtland (1987) defines that the new concept of sustainable development is connected to natural resource management in a sustainable manner [19]. Sustainability is simply defined by Kahle and Gurel (2013) as the way of maintaining natural resources for our future generation without causing harms to the ecosystem [20]. Finn (2009), Lele (1991), and Daly (1990) further described sustainable development as a vital issue that challenges humanity concerning social, political, and economic [21], [22], [18].

20 8 P a g e Business Modeling Figure 1-2 Three pillars of sustainable development (illustration from [23]) These three challenges are considered as three pillars of sustainability (Goodland 1995) [24] see figure 1-2. The research on sustainable development has been further conducted by numerous scholars e.g. James, P. (2014) and Melville (2010) on the basis of these three pillars [25], [26]. Other scholars for instance, Esty (2005) provide other definition to sustainable development i.e.; the organizing principle for sustaining

21 9 P a g e Business Modeling resources necessary to provide for the needs of future generations of life on the planet [27], [54]. According to the latter definition, sustainable development is considered as a process that seeks a desirable future for humanity where resources will meet human needs without harming the stability and beauty of the nature [54]. In fact today concerning human development there is an additional urge for people responsibility to maintain resources for future generations [54]. Product development is the complete process of bringing a new product to market [28]. As Kenneth & Kahn (2013) states this process may be investigated from either business or engineering point of view [29]. Yet according to Smith & Steven (1997) the new definition to product development would be the process of designing, creating and marketing new products to benefit customers [30]. Sometimes referred to as new product development, the discipline is focused on developing systematic methods for guiding all the processes involved in getting a new product to market.

22 10 P a g e Business Modeling Figure 1-3 Illustration of the multidisciplinary research area of business modeling for sustainable product development (self generated image) Here we aim at focusing on the intersection of these three independent fields of research. In the other words an integration of these three fields of research would require conducting a multidisciplinary research. Thus the focus of business modeling would be first narrowed down to

23 11 P a g e Business Modeling Sustainable Development. Further the focus would be narrower to Sustainable Product Development. 1.2 Justification Currently sustainable development has become an important matter for firms around the world [31]. Being in harmony with natural systems would be the solution that sustainable development suggests to the social, political, and economical challenges that firms are facing today [32]. One of the major fields of sustainable development concerns with product development. Firms which are involved in product development highly count on technology-driven innovations in order to produce novel and unique products [31]. And Doganova & Eyquem, (2009) believe that the commercial success of a product is highly dependent on the business model that creates value from innovative technology [33]. In this context success of the innovative business ideas of firms is highly dependent on business models [11]. Therefore concentrating on business modeling for sustainable product development would be of interest of product development firms. And according to Korsten et al.

24 12 P a g e Business Modeling (2008) designing business models that are promising woulod be a major challenge for the innovation-oriented and environmentally conscious firms. Consequently doing a literature review in order to identify the practical use and real potential of business model in product development in a sustainable way sounds essential [34]. Integration of these three fields of research would require conducting a multidisciplinary research. Thus in this book the focus of business modeling would be first narrowed down to Sustainable Development. Further the focus will be narrower to Sustainable Product Development (see figure 1-3). As the result focusing on the intersection of these three independent fields of research would justify our research topic. 1.3 Research Purpose The general research purpose of our book is to identify the research gaps in the field of business modeling for sustainable development. Along with the literature review we aim at increasing the knowledge and understanding on the both fields. Further our purpose is to generate insights into the multidisciplinary research on sustainable product development. In doing so, this book aims at exploring how business

25 13 P a g e Business Modeling modeling has been assisting the sustainable development in firms in general and in product development firms in particular. This would include those firms which are involved in developing products. With our literature reviews we aim to investigate how business models can contribute in sustainable development. 1.4 Outline of the book In the chapter one a brief definition to the concepts of this book is provided. Chapter two presents a theoretical background to business modeling and also business modeling for product development in particular. Chapter three concerns with business modeling and a general revision to the topic of Business models. Chapter four focuses on business modeling for sustainable development and reviews a number of case studies.

26 14 P a g e Business Modeling 2. Theoretical Background In this chapter first we provide a background to Business Modeling and Sustainable Development. Later we briefly present a background to business models for product development. At the end we will discuss how these two fields can be integrated to approach the idea of business models for sustainable product development. Osterwalder (2004) presents a good definition to the potential and usage of business models. He states that: a business model is a conceptual tool that contains a set of elements and their relationships expressing a company's plan of earning money. He further states that: a business model is a description of the value a company offers to customers and the architecture of the firm and its network of partners for creating, marketing and delivering this value [35]. Peter Drucker, who is one of the most influential managers, is among the first pioneers in adopting the business model 50s. He challenged managers to answer their firm s important questions by developing a viable business model. According to Drucker et al. (2008) a business model must answer a firm s fundamental questions about its mission,

27 15 P a g e Business Modeling customer, customer values, results, and plan [36]. The lessons of Peter Drucker have been guiding the managers and researchers who seek deeper understanding toward business modeling. Weill & Vitale, Timmers are considered as those scholars whom took the research to the next level [37], [38]. And further Amit & Zott explain more about designing of the business models [39]. Hacklin & Wallnofer (2012) states that: business modeling since early 90s has been seen as a new way to illustrate a firm s core logic for creating and capturing value [40]. However they also conclude that the literature on business model is very young. Further Osterwalder et al., (2005) highlights that the business modeling is very dependent on the advancements in information technology (IT) [13]. Thus after the year 2000 by expanding the Internet, it experienced a boost. It is worth mentioning that despite the popularity of the term business modeling among today s firms, accordingly our literature review, presented in the next chapter, will present an understanding over the concept.

28 16 P a g e Business Modeling 2.1 Business Modeling and Sustainable Development In this part we provide a brief background to business modeling for sustainable development to get an overall understanding about the topic. In the next chapter our investigation would be more detailed. Recent environmental, economical and financial worldwide crises have increased attention to the importance of sustainable business models. According to Schaltegger et al (2014) these crises have forced United Nations World Business Council to rethink the contributions of governments and firms to sustainable development [41]. And as it was defined in the last chapter sustainability must be managed with respect to sustainability of social, environmental and economical issues. Sustainable development was defined three decades ago by Burton (1987) [42]. According to him the development that meets the needs of the present without compromising the ability of future generations to meet their own needs is considered as Sustainable development [55]. As it was mentioned above the concept of sustainable business model should be dealing with social, environmental and economical issues. Further Starik & Kanashiro (2013) describes that environmental, social, and economical facts together should transform firms toward sustainable

29 17 P a g e Business Modeling development within the boundaries of a sustainable ecosystem. Thus currently managers are challenged to contribute to sustainable development. Furthermore, researchers on other hand are therefore increasingly exploring the new business models for maximum profit making while maintaining environmental issues [8]. The researches conducted by Boons & Lüdeke-Freun (2013) and earlier by Hansen et al. (2009) show the importance of this new field of research [9], [10]. Furthermore according to Sommer (2012) and Hockerts & Wustenhagen (2010) the sustainable business models would be useful for existing firms for a transformation [4], [5]. In addition the innovative business models pioneered by researchers would highly benefit. 2.2 Business models for product development In this part we provide a background to the concept of business modeling. We briefly review the business modeling for the firms which are involved in product development regardless of sustainability issues. In the next chapter we will particularly focus of business models for sustainability development.

30 18 P a g e Business Modeling Concerning product development in particular, the concept of business modeling has become increasingly very popular during past two decades [44]. The innovative idea for product development has been the shift from developing a product to developing a concrete business model that indicates how to make profit [37]. According to the literature of Osterwalder & Pigneur (2010) business model in fact has been known as a tool to assist product development firms [45]. Sommer (2012) emphasizes that it isn't enough to have a product developed but a concrete business model is required to make profit at delivering value to of customers. As the result the value is better delivered to the target customers [51]. Business model simply (in an abstract manner) helps simplifying/describing the way profit is made in a firm. According to Business Model Canvas of Osterwalder & Pigneur (2010), one of the effective tools as such for simplifying/describing the profit making in firms would be the visual business models [45]. Figure 2-1 describes the elements of Business Model Canvas. Such model is well communicated through manager to the employees and different teams within a firm. According to Osterwalder & Pigneur (2010)

31 19 P a g e Business Modeling the concept of business model for product development has a number of components. These components include: Customer Segments, Value Propositions, and Channels of Distribution, Customer Relationships, Key Partners, Key Resources, Key Activities, Cost Structure, and Revenue Streams [51]. Further by identifying the components of a business model we can develop any business model to be used by any firm. In fact, by identifying the components and relation between them it is then possible to investigate the business model, for creating new products. This would deliver the ability to investigate how business will be profitable.

32 20 P a g e Business Modeling Figure 2-1 Components of business model for product development (Osterwalder & Pigneur 2010); Business Model Canvas for Design of Business Models [45] Figure 2-1 provides an overview over components of a standard business model according to Osterwalder & Pigneur (2010). This business model canvas presents a visual representation of business models for firms. Nevertheless such representation of business model

33 21 P a g e Business Modeling can be used for creating either a sustainable conscious business model or a one-dimensional (conventional profit-oriented) business model [45]. Today, due to dislocation in numerous industries, increasing the new global competitors, growing risk in global businesses, and increasing ecological constraints, the concept of product development more than ever needs innovation. Yet as Osterwalder & Pigneur 2010 states the discipline of business modeling offers an advanced approach to growth in this challenging environment [45]. Business modeling for a product innovation means an innovative business idea coming at the right place and the right time. However to benefit from a reliable and competitive advantage, the business model must be systematically cultivated and managed [44]. Researchers such as argue that business modeling for product innovation is highly relevant to the current business environment. Timmers (1998) s research works describe the details that business models have proved valuable and further discuss how companies can develop competitive business models [38]. Among the top product development companies the business models of Apple, McDonald's, Toyota, Blockbuster, Home Depot, Intel, Dell and

34 22 P a g e Business Modeling Starbucks would be the honorable mentions. The business model of any of these multinational firms are very good examples for an innovative product development business model. In the following we will consider the Apple products innovation. In the following we describe a bit more about the business model of Apple as a successful case. However the success stories of such multinational firms are only considered from the perspective of success implementing an innovative business model. Thus such models cannot necessarily be a role model for sustainability in midle-sized firms. As Lindgardt (2009) states Apple s products business model would be a good example of success adaptation and product innovation [44]. In 90s Apple s initial business model to profit was not very promising. In fact Apple s approach to designing both hardware and software limited its progress. As the result Apple was not able to compete in the market with its high prices. Yet in 2001 Apple started introducing new products and services according an innovative business model. The ipod, the itunes and the iphone were the innovative business ideas that helped the company to get to the top of the market.

35 23 P a g e Business Modeling Apple s shift to an innovative business model wasn t only a matter of product innovation rather a reliable and well designed business model. Apple s success, in the other words, came from a reliable business model for downloading music. This business model had in fact highly influenced the music industry since then. Apple provided an integration of product innovation and business model innovation that brought it the success. It also helped the expansion of the company successes to the Apple s computers. Lessons learned from the Apple s successful business model argues that when technology-driven innovations produce novel products, the true success can only be achieved thought an innovative business model. Accordingly the survival of business profitability is highly dependent on novel business models [32]. In this chapter we presented a background to Business Modeling for sustainability as well as business models for product development. Yet our further aim would be to get these two fields integrated to approach the concept of business models for sustainable product development. As it was mentioned above the successful business model cases such Apple may not be necessarily a good example of business models for

36 24 P a g e Business Modeling sustainable product development as the profit of shareholders and stakeholders is dominant.

37 25 P a g e Business Modeling 3. Business Modeling In this chapter the concept of the business modeling is reviewed in respect to product development firms. Here we tried to raise understanding on the topic regardless of sustainability issues. In the next chapter our investigation will be narrower by focusing on the sustainability issue. According to Debei & Avison (2010) business model is an abstract representation of a firm [12]. Such representation may be graphical, conceptual, and textual of architectural, co-operational, and financial arrangements of a firm. Designed. Based on such arrangements the firm aims at pursuing its strategic planes. Debei et al. (2008) further indicates that a firm s business architecture allows the movement of products and information [46]. And such architecture which also used for pricing, revenue structure and value network constructs the basis of a business model. In fact a business model is a conceptual tool including a number of elements expressing the business logic of a specific firm [13]. Therefore, a simplified representation of the business and relationships with customers would be considered as a business model.

38 26 P a g e Business Modeling Business models aim at systematic simplification of complexities of a particular business which is often difficult to conceptualize [33]. In fact through such simplification the design, implementation of business models would support firms in managing new business ideas. Thus, business models represent the essence of firm activities [31]. Furthermore business models support manager in analysis of the success factors and the adaptation of business activities. In other words a business model supports the development process within a firm and illustrates it a simplified form. An Illustration presents what resources are used and how they are converted into products. Consequently a business model includes valuable information about the optimal production factors and the corresponding functions. In this context, and according to Wirtz (2010), the business model can be understood as a management tool for empowering firm success [47]. According to Stähler (2002) a business model is always a simplifide version of a complex reality [48], [49]. Further Cavalcante et al., (2011) regards business model as an abstraction for describing a business at the conceptual level [56], [57]. From this point of view Magretta (2002) differentiate between the terms business modeling and strategic

39 27 P a g e Business Modeling planning [58], [59]. As the result we can describe business model as a system showing how parts of a business can gather together. Yet the concept of strategy planning acts as a critical dimension of firm s performance [58], [59]. Firm s Strategic planing Business Model Business Process Figure 3-1 Business model as the link between strategy and business process in the firm according to Seddon & Lewis (2003) [60] (self illustrated) Further Seddon & Lewis (2003) present the abstract representation to be the main difference between business model and strategy planning [60]. In the other words a business model is an abstract representation of a firm s strategy [19]. An abstract representation simply presents the important details of a firm concerning delivering customer value. Seddon & Lewis (2003) indicate strategy planning is always specific to a particular firm, yet a business model can be used for a number of firms [60]. Here we should note that the concept of business model has the

40 28 P a g e Business Modeling capability to change the traditional strategic planning by providing a more dynamic planning perspective for firms. According to Osterwalder (2004) business model in the firm is the link between strategy and business processes [35]. He models the relationship between strategy planning and organization. Figure 3-2 The role of the business model in the firm [35]

41 29 P a g e Business Modeling Figure 3-2 represents his proposed model. He uses the concept of a business triangle that which is subjected to external pressures including social change, technology, competitive forces, customer opinions and legal environment. Figure 3-2 defines the business model as a conceptual implementation of a business strategy and with that the role of business model is shown more clearly [50]. Such implementation, according to Osterwalder (2004), would be the foundation of business processes and information systems in a firm. Consequently, the business model would be a translation of the strategy of the company into a profit making plan [35]. Osterwalder (2004) believes that strategy planning, and business models address similar problems but on different business layers of a firm. Figure 3-3 shows the different layers of the business in a firm [35].

42 30 P a g e Business Modeling Figure 3-3 Business Layers according to Osterwalder (2004) [35] In fact the business model layer of a firm is positioned between the strategies layer and process layer. Strategic layer includes all the planning toward vision and goals of a business. And process layer deals with the implementation and inner organization of a firm. Yet the business model according to Osterwalder (2004) s business layers would be the architectural and logic behind profit making of a firm [35]. Figure 3-3 illustrates the layers of business in a firm and the position of business model layer.

43 31 P a g e Business Modeling 3.1 Design of the Business Models Klang (2010) explains that there is a significant inconsistency concerning the business model design and the terms used to describe the parts that configure a business model [61]. Yet According to Ghezzi et al. (2010) it is reported that business models should be analyzed through a design stages. In fact business model design support strategic planning design instruments with a more flexible representation and implementation within a firm [62]. Here we should note that in designing a business model the elements (Yip, 2004) of a design may have different terms in different literature [63]. In fact today in the literature different terms is used interchangeably in concerning the topic of business model. For instance Osterwalder & Pigneur (2010) refers them as components, Venkatraman & Henderson (1998) as vectors, Chesbrough & Rosenbloom (2002) as functions, and Schweizer (2005) as dimensions [64], [45], [32], [65]. Yet according to Linder & Cantrell (2000) business model is actually characterized by its constituting components [6]. Nevertheless the components of business model are very important for implementation of innovative business ideas and also understanding the

44 32 P a g e Business Modeling strategy planning and further adaptation [40]. And as the components of a business model are dynamic, it is not only useful to model the actual strategy of a firm but also provides a framework for discovering new business models in response to strategic planning. Concerning the dynamic components of the business models, Amit & Zott mention that the early research in the field mainly deal with the innovation potential of business models [39]. However today s highly competitive market has very much changed the judgment on business models. Consequently recent books and articles on business modeling emphasize the importance of dynamic business modeling for firm s success [12, 13, 14]. Thus it is evidenced that those firms that are willing to innovate new business models are suitable to bring a sustainable competitive advantage. Consequently, researchers urging innovative firms to invest more in the area of business modeling[19]. In respect to above Osterwalder (2004) proposed a standard model on the basis of the similarities of a vast vnumber of different business model configurations [35]. His proposed approach which was actually inspired by Kaplan & Norton (1996) further was advanced and developed the Business Model Canvas for the purpose of designing the business

45 33 P a g e Business Modeling models (Osterwalder & Pigneur 2010). Osterwalder & Pigneur s reference model, which is shown in the following figure, is considered as an analysis tool that offers entrepreneurs with a common language for designing the business models [45]. Figure 3-4 Business Model Canvas for Design of Business Models; Osterwalder and Pignuer (2010) s Standard Model [45]

46 34 P a g e Business Modeling The standard business model of figure 3-4 helps managers to understand, design, analyze and communicate the business strategy of their firms. According to Osterwalder & Pigneur (2010) the Business Model Canvas includes the four areas of infrastructure management, product, customer interface, and financial aspects that every business model has. Furthermore, every business model has to describe the nine vital building blocks within a firm. These blocks according to Osterwalder and Pignuer (2010) s standard model include; key resources, customer relationships, customer segments, key activities, revenue streams value proposition, key partnerships, cost structure and channels. In the following we provide the definition to all these blocks according to Osterwalder & Pigneur (2010) [45]: Customer Segments Block: it defines the different groups of customers that an enterprise aims to reach [45]. Value Proposition Block: it describes the bundle of products that create value for a Customer Segment [45]. Channels Block: it describes how a company communicates with its Customer Segments [45].

47 35 P a g e Business Modeling Customer Relationships Block: it describes the types of relationships a company establishes with specific Customer Segments [45]. Revenue Streams Block: it represents the cash a company generates from each Customer Segment [45]. Key Resources Block: it describes the most important assets required to make a business model work [45]. Key Activities Block: it describes the most important things a company must do to make its business model work [45]. Key Partnerships Block: it describes the network of suppliers and partners that make the business model work [45]. Cost Structure Block: it describes all costs incurred to operate a business model [45]. The above proposed building blocks for business model design have proved practical applications in developing business models. Further they can be used as a general tool for supporting strategy analysis of firms. Accordingly the dynamic nature of the business modeling would be particularly beneficial to firm s strategic plans. As McGrath (2010) reports the benefit of integrating the business model concept into the

48 36 P a g e Business Modeling strategic planning. In this context the abstract nature of business models enables a planning approach that primarily is based on rapid experimentation [65]. In fact recently managers recognize the value of business models as a unit of analysis, planning and innovation [40]. Further Stähler (2002) and Cavalcante et al. (2011) see business model as a systematic tool for evaluation [48], [56], [57]. Kamprath et al. (2014) proposes an analysis tool and template for business modeling. This tool is known as business model environment template (B-MET) which is a theory-driven and a practical modeling and analysis tool. This template is considered as a new direction in management literature and it can transfers different theoretical definition into a practical context. Yet according to Kamprath & Van den Broek these concepts include business ecosystems, sustainability, multi-sided markets, industry convergences, social construction of markets, value co-creation, technology regimes and transitions [66]. Following figure presents the proposed template.

49 37 P a g e Business Modeling Figure 3-5 The Business Model Environment Template according to Kamprath & Van Den Broek [66] According to Kamprath & Van den Broek the B-MET defines a firm s business model into three broad dimensions which are Value Creation, Value Proposition and Value Capturing [66]. Note that this template satisfies the definition that Osterwalder & Pigneur (2010) provides for business models [45]. To understand these dimensions Osterwalder & Pigneur (2010) states that business models are the logic how an organization captures value [45]. The above template further includes each of the business model

50 38 P a g e Business Modeling dimensions with a major area in the area of the business model. In a proposed business model template a firm s value capture method supposed to be influenced by sustainability and value chain. However the effectiveness of a firm s value capturing system is highly dependent on the consumers value. Moreover, as Vossler (2015) [107] states the Market Attractiveness within an industry is deemed to have the largest impact on how firms organize their Value capturing modes (Vossler 2015) [107]. Kamprath et al. (2014) further illustrates (see figure 3-5) four sub-dimensions for each environmental part of the business model [66]. As Vossler (2015) [107] mentions that scholars provide support to managers in analyzing the consistency between firm s business model and its sustainability. In this manner they would offer generating ideas for modifying the business model to captures better opportunities [66]. 3.2 Literature Review on Business Modeling Modern business model concepts initiated in the late 90s [67]. However as Osterwalder, et al (2005) describes the popularity of the term

51 39 P a g e Business Modeling business model is a relatively young concept [13]. In fact the term the term business model appeared for the first time in a research article in 1957 by Bellman et al. Nonetheless it became very popular only after the end of the 1990s [68]. In the early 2000 when the business model started to become popular a number of authors for instance Timmers (1998) and Rappa (2001) proposed the early definitions and classifications to business models [38], [69]. Further authors for instance Chesbrough and Rosenbloom, Linder and Cantrell (2000), Magretta (2002) completed the definitions by proposing the elements of business models. These propositions were simply defining the components of a business model [32], [6], [58], [59]. Further authors for instance Weill & Vitale, Osterwalder & Pigneur (2010), and Hamel (2000), described in details the components of business models (see figure 2-1) [37], [45], [70]. Other researchers for instance Kamprath & van den Broek and Osterwalder modeled the components conceptually [66], [35]. Their work resulted to the proposition of business model in the form of standard templates. And according to Kamprath & Van Den Broek the business models also started to be evaluated more rigorously [66].

52 40 P a g e Business Modeling The examples of early business models have been recently reviewed by Wirtz et al. (2015) [67]. According to Alt & Zimmermann (2001) the idea of business modeling initiated by the urge to describe and evaluate new forms of businesses [71]. And worth mentioning that in conventional term, the business model integrates a number of research disciplines together [32]. The concept of business modeling received attention as general management concept for instance by Chesbrough & Rosenbloom (2002) [32]. They in fact integrated the business model to strategic planning and innovation. Further business model research initiated numerous approaches to implementing business models [58], [59]. Gay (2014) states that: when a business enterprise is established, it either explicitly or implicitly uses a particular business model. Such model describes the architecture of the value creation, customer vaue, delivery, and value capture of the business [72]. Business models have become much more advanced over the years. According to Teece (2010) the meaning of a business model is understood as the way a firm delivers value to customers. In fact a

53 41 P a g e Business Modeling business model reflects management and customer s requirements and how to make profit accordingly [73]. To understand the above definition here we provide an example business model provided by Teece (2010) [73]. He describes the hook and bait business model, as one of the early documented business models that was proposed in According to this model a product is offered in low price, yet charging further amounts for dependent products. Examples include razor and blades; cell phones and air time; computer printers and ink cartridge. Further model would be Adobe reader which provide a free document reader, however charges more for its better software package [56], [57]. In 50s, innovative business models were introduced by McDonald's and Toyota. In the 60s the Business models of Wal-Mart and Hypermarkets came out. The 70s business models from Toys R Us and FedEx was introduced. One decade later during 80s, Home Depot, Blockbuster, Dell Computer and Intel, presented their successful business models. In 90s the Southwest Airlines, Netflix, ebay, Amazon, and Starbucks would be major examples of outstanding business models. Nonetheless during the last decades it was evidenced that the characteristics of

54 42 P a g e Business Modeling business models highly depends on how advanced technology is adapted. For example managers with the aid of advancement of ITC can create innovative models based on the existing technologies. In fact it was evidenced that by using the novel technologies, businesses can profit from customers with low costs. In addition to technology, the right organization of supply chains in the global market would make a difference. In other words the due to globalization the business models must also benefit from the advancement of supply chains management [56], [57]. Gay (2014) describes further that: the business model s value creation function. In the business model the architecture of the value creation is of importance as it delivers and captures mechanisms of a firm. In fact the essence of a business model is that it emphasizes customer needs and further defines the manner by which the firm delivers value to customers [72]. As it was mentioned above a business model describes the logic of how a firm creates value and profit [45]. Wirtz (2010) describes how recently the design and implementation of business models have become relevant increasingly vital [47]. Especially in the business of product

55 43 P a g e Business Modeling development the concept of business model is often utilized. Business models are mainly connected to increasing competitive advantages in the market. Nevertheless it is evidenced that the success of a firm is largely related to the implementation and management of business models [74]. Here it is worth mentioning that increasing globalization and a high degree of economic integration have made the markets very competitive and more complex. Therefore to stay competitive in the market a firm must immediately adapt to the changing market conditions. With the aid of business models firms can manage to adapt to the dynamic and complexity of market competition [11]. An extended definition to business modeling focusing on elements of the value creation has been given by Osterwalder & Pigneur, in the book business model ontology and business model canvas [13]. Here we would like to emphasize the positive relationship between business modeling and internet. (Osterwalder, et al. 2005) points out the effect that internet had on the progress of business modeling [13]. In fact advancement of the Internet in the business world can be seen from the

56 44 P a g e Business Modeling steep rise of the NASDAQ stock market for technology firms (see figure 3-6). Figure 3-6 Business Model Vs. Technology from 1996 to 2005 (Osterwalder, et al. 2005) [13] According to Osterwalder, et al. (2005) the number of times the term business model appeared in a research journal resembles the shape of the NASDAQ market index (see figure 3-6) [13]. Consequently it is quite obvious to mention the fact that a business model has indeed a relationship with internet-related technologies.

57 45 P a g e Business Modeling Our literature review in this chapter has shown that the business model concept as a new and emerging concept that have potential to be further explored. In addition, consultants in order to understand the relationships within the business elements have become increasingly interested in the topic. On the other hand here I would like to conclude that business models become known as a tool to create an easy to understand business description of a firm to improve the communication within a firm. It also simply can answer the fundamental questions of a business. However here I would like to argue that a concrete approach to business models is necessary in order to detect new possibilities within business firms. Currently there exists knowledge about the terms, elements, attributes and relationships of the business model concept. However we will need a step forward towards the conceptualization. Here I would like to agree with Osterwalder (2004) that for future studies on business models there will be a number of possible paths toward exploring the potential of the business modeling [35]. Accordingly one of these paths will be indeed the alignment of business and IT strategy. In

58 46 P a g e Business Modeling addition it will be necessary to investigate a number of business models and analyze to find out the pattern of a successful business models. In the next chapter we will particularly focus on business modeling for sustainable development. This will limit the concept of business models to the sustainable business ideas.

59 47 P a g e Business Modeling 4. Business modeling for sustainable developement In this chapter business modeling is discussed as an important tool that can support the adoption of cleaner products. Recently the research on sustainable innovations has expanded dramatically to increase an understanding in which new technologies enable businesses to become more sustainable. On the other hands clean sustainable technologies have become more advanced [75]. In addition we have been observing a new dimension for systemically including more sustainable technologies into business modeling approaches [88]. In this context Diaz and Coenen (2010) have well contributed in increasing awareness about factors that empower the sustainable development [89]. They studied the firm characteristics, as well as factors in sustainable development that support the products innovation [90]. This chapter searches for links between sustainable development and business modeling. To recall from the last chapter the business management specifies the dimensions of a successful market and describes how a firm can make profit from providing innovative products. This would include the customer value and the value creating in a

60 48 P a g e Business Modeling profitable manner. Yet such profit elements are vital for the success of sustainable innovations. Schaltegger et al. (2015) present a definition of a business model for sustainability. They state that business model for sustainability must help to implement a company s sustainable value proposition to its customers and all stakeholders [50]. Such sustainable model further maintains an effective management and communication. In addition a sustainable model concerns with the ways how such sustainable value is created and delivered. In the other words a sustainable model must define how a business model can capture value while maintaining natural, social, and economic sustainability beyond the firm s boundaries. And as Schaltegger, et al (2012) explains the research on business modeling in the context of sustainable development has recently become very popular topic among researchers and industries [50]. Sustainability researchers are challenged to offer reliable alternatives to conventional business modeling. However the challenges and techniques in this field are expanding continuously and therefore a

61 49 P a g e Business Modeling unique definition of business models for sustainability is yet to be provided [92]. Figure 4-1 Illustration of the multidisciplinary research area of business modeling for sustainable development (self made) The intersection of business modeling research field and sustainability which we consider as a multidisciplinary field of research highlights the value-making strategy of a firm and its effects on the environment and natural resources. It further enables the firms and other private

62 50 P a g e Business Modeling partnerships to narrow their focus for designing models for maximizing profit [93]. As it was reviewed in the second chapter, Teece (2010) provided a definition to business modeling. However from the perspective of sustainable development, Teece s definition is considered as a conventional description to business modeling which is one-dimensional for profit making only [73]. Such profit making is done without considering the consequences towards the ecological contexts. Here we would like to recall that the conventional business paradigm has been the mentality of egocentric value creation. Further sustainability researches reviewed by Breuer & Lüdeke-Freund (2014) extends Teece s definition further towards ecological values for sustainability. In such researches according to [50] lots of emphasis given to firm s market that distinguish the business models for sustainability. Accordingly extending the conventional view of a business model around a customer value must be performed with creating value to a broader range of stakeholders. This must however include the natural environment, beyond customers and shareholders.

63 51 P a g e Business Modeling Boons and Lüdeke-Freund (2013) further propose a definition to business modeling which is very effective and relevant in the framework of sustainable development [9]. They believe that value proposition in sustainable firms must provide ecological concerns through offering products. In addition the business portfolio must consider the principles of a sustainable supply chain management. Furthermore the customer relation must enable a better and more reliable relationship with stakeholders to be responsible for sustainable products. The above definition proposed by Boons and Lüdeke-Freund (2013) is considered as a strategy for sustainability that can be used in firms instead of only selling stuffs [9]. According to a revision by Bocken et al. (2015) in this strategy the business models will distribute economic costs and benefits equally among the constituting elements involved [94]. Nevertheless the popularity of the business modeling for sustainability concept has become very much increased. In fact the intersection of research on business modeling and sustainable development as Schaltegger (2015) would say stimulates new approaches in the fields of corporate sustainability management and sustainable

64 52 P a g e Business Modeling entrepreneurship with particular consideration on environmental aspect of development [50], [91]. Stubbs & Cocklin (2008) introduced more reliable business models that contribute to firm s sustainability, as the early works on business models for sustainability [1], [2]. According to Hansen et al. (2009) business models for product-service systems such as car or bike sharing have been the cases where analyzing business models done from a sustainability perspective [10]. Such cases are considered as sustainability-oriented innovation for use-systems [3]. Other researchers for instance Wells investigated the relationship between business models and sustainability management [79]. In addition a number of researchers studied the sustainability from a social development perspective. For instance Ricart (2010) developed an interactive business model for low income countries [95]. Furthermore Seelos (2014) [108] seen business modeling as a technique for addressing social needs and healthcare services in poor regions.

65 53 P a g e Business Modeling 4.1 Literature Review Here we would like to review the current scientific literature about the connection between business models and sustainable development. We would like understand how the business model concept can help defining a perspective for future research on sustainable development. For this reason we will focus on the link between sustainable development and business modeling in recent research. And as it is mentioned above business modeling can define the components of a business that need to be managed for creating customer value by integrating the three important business aspects of environmental, social, and economical [9]. Callon et al., (2007) mentions that innovation and development active actors in business are considered to be firms, companies, financiers, and research institutions which shape the innovation networks [96]. And further Doganova and Eyquem (2009) explain that a business model is a marketing tool for these innovation and development actors to connect such actors through narratives and calculations. Concequently the business model can be interpreted as a reliable market device Model (2010) [33].

66 54 P a g e Business Modeling Many researchers such as Timmers (1998) focuse on the consequences of innovative technologies on how firms organize to make profits [38]. This fact has been very relevant for the field of sustainable development since technologies highly contribute to sustainability. Among the recent technological advancement, the internet and ICT has the most importance. According to Boons & Lüdeke (2013) business models became popular during the internet era. Since the progress of internet firms and analysts came to realize that existing ways of earning a profit would be more sustainable and also profitable via a shift to web-based products and services [9]. Researchers such as Linder and Cantrell (2000) have seen business model as a strategy planning technique to improve a firm s profit-making approach [6]. Accordingly business model serve as a development tool for business systems for representing and planning the business with an emphasis on firm s efficiency. Afuah (2004), Casadesus and Ricart (2010), Johnson (2010) and Tikkanen et al. (2005) add the element of market competition to the efficiency factor of business model [97], [95], [87], [98]. Accordingly, creating and delivering customer value lies at the heart of business model. Moreover, while creating and delivering

67 55 P a g e Business Modeling customer value the business model itself can deliver a competitive advantage [9]. Boons and Lüdeke-Freund (2013) show that innovation is one of the most important topics in the research on business modeling as an important factor form making advantage and renewing firms [9]. In this context Baden-Fuller et al. (2010) [109] describes that business modeling can support the strategic marketing for innovative products development. Furthermore business models can provide competitive advantage to the firms (Chesbrough 2007) [110]. According to Calia et al. (2007) there is a two-way connection between sustainable product innovations and business model designs. In fact in the management literature there is a connection between business model of a firm and its innovative business strategy and related activities. In this context Calia et al. (2007) describe that business models are crucial aspects of managerial sustainability activities. However we need to further explore what makes product innovations in firms sustainable. In the following we overview the literature on sustainable product innovation. To do so the recent research on sustainable business models are presented [99].

68 56 P a g e Business Modeling Rio et al., (2010) [111] define sustainable development as ecoinnovation in product development. They further provide an overview on the recent research in the field. In many of the recent studies the term eco-innovation is referred as clean technological development. As Del Rio et al., (2010) [111] describes eco-innovation is concerned with a term overlaps with innovations that have an effective ecological performance. Figure 4-2 Illustration of Eco-innovation business model innovation proposed by Rennings (2000) [100], and modified and updated by Lüdeke- Freund (2010) [80]

69 57 P a g e Business Modeling Eco-innovation has recently become of the particular interest of researchers in many different disciplines including economic sociology, science and technology studies, evolutionary economics, innovation economics, and even history. Nonetheless the focus of all these disciplines is mainly on innovations related to the ecological and environmental impact of the product development [101]. According to Boons and Lüdeke (2013) in order to understand deeper the eco-innovation in a product development firm the focus should be on the innovative capacities of that individual firm at the organizational level [9]. Therefore the research focuses would be on developing innovative technologies for marketing and production in order to improve the valuemaking. For instance EcoDesign tools (Visser et al.) would be one of those technological advancements that help firms at the organizational level. Yet the technological advancement that may contribute in the process of managerial decision making has been reported to be limited [102]. Horbach (2008) studied the impact of various factors on firms innovative capacities through statistical methods [86]. They studied the impact of governmental regulation on the ability of firms to develop towards

70 58 P a g e Business Modeling sustainability. Further Montalvo (2008) and Boons and Lüdeke (2013) investigated the sustainability adaptation of cleaner technologies [88], [9]. Hall and Clark (2003) further described that eco-innovations without diffusion in society, are meaningless. However they conclude that in capitalist societies where the market is a dominant mechanism there have been many cases of success. According to Hall and Clark (2003) further challenge for development of businesses towards sustainability would be profit making abilities of firm. Nevertheless considering the sustainable innovation from a business model perspective will meet these challenges [75]. Lovins et al. (1999) aligned business models with environmental expectations. They introduced such alignment as Natural Capitalism which consists of management principles for increasing the natural resources productivity and reinvestment in natural capital. They believe that with Natural Capitalism they can realize a major change towards sustainable business models [76]. However the emergence of such models requires an upgrade on the firms performances. Schnaiberg (1980) further outlines that according to Natural Capitalism a controlled

71 59 P a g e Business Modeling business model can increase the work force productivity in firms while increasing the exploitation of natural resources. In the other words Lovins et al. (1999) see business model as an important step towards Natural Capitalism [76]. In respect to Natural Capitalism, Hart and Milstein (1999) point out the fact that the global economy as a collection of different economies that each of these economies requires a suitable business modeling approach. And the aim of utilizing the business model in each different type of economies should be a contribution to sustainable development. In this context business model can be identified as an important tool to support sustainable businesses. In addition business models can be linked to sustainable innovation for creating sustainable value. Milstein and Hart (1999) propose that business modeling for sustainability must deliver green industrial revolution. To do so they proposed that managers must connect business opportunities and their business models to this challenge [77]. To conclude we would bring this line from Boons and Lüdeke (2013) that business models can be seen as a way to reduce negative ecological impacts which is require to achieve sustainable development [9].

72 60 P a g e Business Modeling Hart and Milstein (1999) however further argue that three different types of economies which are emerging, consumer, and survival economies, must be distinguished. In fact in each economy the respective conditions for production and consumption dramatically differ in the light of sustainable development. Accordingly each economy may require entire different business models. Consequently Hart and Milstein (1999) conclude that understanding an economy would be the first step toward sustainable development [77]. In addition as Boons and Lüdeke (2013) would say social and technological innovations are required to avoid weak points of traditional business models in emerging and survival economies [9]. In the following we distinguish the three types of economies and consider the business modeling from the economical perspective of local firms. Different types of economies would be consumer, survival and emerging economies. Consumer economies of the industrialized countries would have a great purchasing power comparing to emerging, and survival economies. Great purchasing power would result in unlimited consumption power. In such economies business models have to be designed in a way that

73 61 P a g e Business Modeling reduces Carbone footprints and separates production and consumption from ecological impacts [9]. Survival economies on the other hand due to rural lifestyles and also lacking infrastructures people suffer from the lack of basic needs. In such economies according to Boons and Lüdeke firms have to come up with outstanding business model innovations to bring advantage to the traditional consumer models. The business models proposed by Microcredits of Grameen Bank and Ruf & Tuf Jeans which is a model of ready-to-make and low-priced for clothing would be the success cases [9]. The economies in emerging countries according to Hart (1997) are characterized by satisfying basic needs yet increasing purchasing power [78]. In such economies the trends of rapid industrialization and urbanization requires new business models to meet customer needs as well as social and environmental sustainability.

74 62 P a g e Business Modeling 4.2 Business models for sustainable development; requirements and barriers Implementing business model within a firm needs a number of requirements to be satisfied. Furthermore Firms will be facing a number of difficulties in order to truly benefit from innovative business models. Once we overcome requirements and barriers then we will be very close to the realization of business models for sustainable innovation [79]. Boons and Lüdeke describe a number of requirements and barriers. In the following we provide a summery to the research of Boons and Lüdeke and present their important findings [9]. According to Boons the concept of business modeling should be considered from the wider perspective of sustainable development. However the concept of sustainable business models has been reported to very young today [80]. According to Lele (1991) sustainable development is a process where ecological, economic and social values are in harmony [22]. Such process involves inter-organizational networks which include firms and also other stakeholders.

75 63 P a g e Business Modeling Here we would like to recall that business model according to Boons and Lüdeke consists of four elements which are value proposition, supply chain, customer interface, and financial model. These elements present a number of standard requirements that has to be met for successfully marketing sustainable development. These requirements are defined generically on purpose. Future research on these requirements however may allow investigating their actual relevance. Boons and Lüdeke explain that these requirements actually pose as boundary conditions which need to be satisfied in order to cooperate within a sustainable innovation system. Further they define how particular innovations can be utilized [9]. Further Schaltegger and Wagner (2011) conclude that by satisfying these boundary conditions the sustainable development would be successfully marketed to clarify a firm s sustainability potential. In addition the created business model also has to operate within certain boundaries to avoid contradicting firm s potential [82].

76 64 P a g e Business Modeling VALUE SUPPLY CUSTOMER FINANCIAL PROPOSITION CHAIN INTERFACE MODEL BASIC BUSINESS MODEL Figure 4-3 Basic requirements for successfully developing sustainable business models according to Boons and Lüdeke [9]

77 65 P a g e Business Modeling Above figure shows four basic requirements to be met for developing business models for sustainable development. In the following we briefly describe these requirements according to Boons and Lüdeke [9]. The value proposition [83] provides economic, ecological and social value into the business models of firms. The value proposition reflects a business-society dialogue concerning the balance of economic, ecological and social needs [115]. The supply chain concerns with suppliers which make responsibility for their firm s stakeholders. Via supply chain according to Seuring and Müller (2008) a firm actively engages suppliers into its own sustainable supply chain management system [84]. The customer interface in a business model for sustainable development motivates customers and stakeholders to take responsibility for their consumption. In fact a firm cannot, on their own, shift towards a sustainable socio-ecological relying only on its customers. However according to Hart and Milstein (1999) a reliable customer interface can be set up with recognition of the sustainability challenges of market [77, 115].

78 66 P a g e Business Modeling The financial model in a business model for sustainability is responsible for an appropriate distribution of economic costs and benefits among actors involved in the business model (Gaziulusoy 2014) [112]. According to Maas and Boons (2010) financial model accounts for the firm s ecological and social impacts [81]. Beside the requirements that we mentioned above here we would like to outline the barriers facing the implementation of sustainable development. In the following we briefly discuss the possible barriers and the way to overcome barriers. Charter et al., (2008) explain that sustainable innovations are often considered as challenges that come from novel technologies and designs [85]. Further Geels (2005) discuss that with the advancement of technology, firms can overcome economic and further environmental barriers and gain value from sustainability [83]. From this point of view the technological innovation would highly contribute to overcome barriers. This is actually the characteristic of sustainability that it has to fit within the firms expectations to be economical and further contribute to solving sustainability problems [86]. This matter is discussed by Hansen et al.

79 67 P a g e Business Modeling (2009) as a barrier to business models for sustainable development [10]. Thus novelty in utilizing the technological advancements within the framework of business models for sustainable development is considered to be vital. Considering product development the sustainability innovation and technological advancements can be seen as a process to fit within the already existing business models. For instance a firm producing light bulbs can transform from conventional to energy saving bulbs. However such firm can go even further and fit the advanced technology of energy saving bulbs within a novel business model. And as Boons and Lüdeke says this will be the case when the light bulb producer delivers lighting services where the bulbs are only part of the value proposition" [9]. The case study of energy saving bulbs would be a good example for increasing the awareness about the importance of the technological advancement within a firm. In fact a maintaining a productive relationship between technology and novelty in creating a reliable business model for sustainability is vital. Thus keeping up with innovative technologies can indeed empower a firm s business model. It

80 68 P a g e Business Modeling further can increase the ability to overcome barriers to develop a new product. In the process of creating business models for sustainable development in particular, firms are facing a number of barriers. These barriers can be internal or external. The barriers which are more concerned with organizational level within a firm are called internal barriers. And further barriers which are concerned with firm s environment and for instance market situation and governmental regulations are referred as external barriers [76]. BARRIERS IN DEVELOPING BUSINESS MODELS EXTERNAL BARRIERS INSIDE BARRIERS Figure 4-4 barriers in developing business models for sustainable development (Boons and Lüdeke) [9]

81 69 P a g e Business Modeling An important internal barrier for a firm, according to Johnson (2010) and Boons and Lüdeke (2013) is the institutionalized organizational memory [87], [9]. Institutionalized organizational memory refers to business rules, organization behavioral norms and success metrics. These internal barriers are indeed powerful inhibitors to the creation of successful business models. On the other hand external barriers can be identified in the external business environment of a firm. In developing business models for sustainable development for firms involved in product development identifying such external barriers is of particular importance [9]. In industries such as energy and automotive, where the complexity, high capital intensity and disruptive technologies are involved considering the external barriers become even more important. According to Wüstenhagen and Boehnke (2008) the out of date technologies may lead to passive business models [103]. An example for an industry that is locked in its passive business environment and barriers is mobile telephony [9]. Mobile telephony is a firm with a number of external barriers. In fact having external barriers in

82 70 P a g e Business Modeling meeting the goals of sustainability means a firm with huge ecological impacts [103]. Before describing the business model of ICT Mobile firm we should explain that the marketing of mobile phones is a joint effort of the cellphone producer and the network provider. As Camponovo and Pigneur (2003) explain according to the business model of the firm called Mobile telephony the cellphones were offered free to the customers within a long term contract [104]. Boons & Lüdeke-Freund (2013) report this is a viable model in terms of revenues for both the network provider and the hardware producer [9]. However this would result in increasing the substitution of devices. And because firms offer new fashionable models with a divers fashion this business model led to excessive resource overuse with negative social and ecological impacts. According to above such external barriers indicate that introducing a sustainable innovation requires a far reaching approach to change things at the company level. Thus external barriers which came up by the wider environment of the respective consumption system must be taken into account [50]. Nonetheless dealing with barriers towards reducing the environmental and social impacts and also the demands of

83 71 P a g e Business Modeling sustainable development in such firms would be a complex issue to achieve [85]. Tukker and Tischner (2006) [114] however believe that in such situation more innovations are required to have a greater sustainability result. 4.3 Business Modeling for Sustainable Product Development This section intended to review how the business model concept helps to understand and enhance sustainable product development. Further via reviewing a number of case studies we explore that how this perspective can become a new research field of sustainable innovation. The integration of sustainability with business has become one of the most debated topics of the modern consumer world. However sustainability is indeed very vital fact for human health and happiness. Yet as Wells (2013) would describe It is already apparent that in certain critical respects the prevailing business models may be inappropriate and inadequate to meeting the challenge of sustainability [117]. According to the research of Nidumolu et al. (2009) [116] today firms are actually convinced that being sustainable and so called environmental-

84 72 P a g e Business Modeling friendly can be very costly and it will prevent them to stay competitive. In the other words they actually believe that adding the sustainability factor to the concept of business modeling will add to costs and will not be financial beneficial. In addition to above we would like to add that sustainable product development in manufacturing stages actually needs new equipments and innovative processes which can be more expensive. And not to forget that the average customers may not be willing to pay more for sustainable products which may be more expensive. These are only a few reasons why most firms don t take their social responsibility seriously and would rather hesitate to become more sustainable. In this situation we should definitly need an innovative transition to adapt to sustainability in product development. According to Nidumolu et al. (2009) such transition can be easy. Firms that have started the journey, our study shows, go through five distinct stages of change. They face different challenges at each stage and must develop new capabilities to tackle them, as we have shown mapping the road ahead will save companies time and that could be critical [116].

85 73 P a g e Business Modeling These five stages according to Nidumolu et al. (2009) are; stage 1: increasing the value chains sustainablity stage 2: creating innovative platforms for sustainability, stage 3: developing innovative business models, Stage 4: designing sustainable products Stage 5: viewing governmental rules as opportunity. It is suggested that by following these five stages firms can develope more sustainable business models for product developement. As Wells (2013) describes for a sustainable product developement business model we should combine the economic and sustainable concerns together. To doing so the business management strategy must contribute to innovative business planing. Wells (2013) further suggests that sustainability must be seen as a fundamental structure of business modeling for product developement. Furthermore the creation of innovative sustainable business models should benefit from a deep understanding of the whole system of product developement. As it was explained in chapter two in the product development business model of Teece (2010) firm s strategy, innovation and barriers are combined [73]. Accordingly the essence of a business model was defined as a way to only clarify the customer needs and make profit. In

86 74 P a g e Business Modeling fact the idea of the business model was actually limited to defining how firms deliver value to customers and make profit. Nonetheless it was reported that creating and delivering customer value was the most important aim of any business model. Therefore the central element of the business model would be customer value proposition [87]. However today by dragging the idea of sustainability into business modeling the initial concept of business model has been very much challenged. Figure 4-5 left: introducing the multidisciplinary research field of business model for sustainable product development, vs. right: business model elements proposed by Wüstenhagen & Boehnke, (2008) [103] and modified by Lüdeke-Freund (2010) [80]