Sustainability gaps and stakeholder requirements

Transcription

1 D1.1 Version: 1.0 Date: Author: VTT Dissemination status PU Document reference D1.1 Sustainability gaps and stakeholder requirements Project acronym: Project name: Call and Contract: SustainValue Sustainable value creation in manufacturing networks FP7-NMP-2010-SMALL-4 Grant Agreement no.: Project duration: (36 months) Co-ordinator VTT VTT Technical Research Centre of Finland (FI) Partners: POLIMI Politecnico di Milano (IT) UiS FIR DIN FIDIA Riversimple CLAAS ELCON UC Center for Industrial asset management, University of Stavanger (NO) Research Institute for Operations Management at RWTH Aachen University (DE) DIN, The German Institute for Standardization (DE) FIDIA (IT) Riversimple LLP (UK) CLAAS Selbstfahrende Erntemaschinen GmbH (DE) Elcon Solutions Oy (FI) University of Cambridge (UK) This project is supported by funding from the Nanosciences, Nanotechnologies, Materials and new Production Technologies Programme under the 7 th Research Framework Programme of the European Union.

2 Project no SustainValue Sustainable value creation in manufacturing networks D1.1 SUSTAINABILITY GAPS AND STAKEHOLDER REQUIREMENTS Due date of deliverable: Start date of project: Duration: 36 months Organisation name of the lead partner for this deliverable: VTT Revision 1.0 Project co-funded by the European Commission within the Seventh Framework Programme Dissemination Level PU Public x PP RE CO Restricted to other programme participants (including the Commission Services) Restricted to a group specified by the consortium (including the Commission Services) Confidential, only for members of the consortium (including the Commission Services) Page 2 of 54

3 Contents 1 Executive summary Terminology Introduction Background on the business models in manufacturing industry Background on the network approaches in manufacturing industry The roadmapping methodology and process Current state of sustainable business models for manufacturing networks Stakeholders Primary stakeholders Secondary stakeholders Business ecosystem Business model Value networks Success criteria Benefits/value Roadmap for future sustainable manufacturing business model development priorities (changes, catalyst and obstacles) Stakeholders Business ecosystem Success criteria Benefits and value Catalysts and obstacles SustainValue roadmaps Identified sustainability gaps and priorities for manufacturing Empowering stakeholders Page 3 of 54

4 6.2 Increasing efficiency Creating new performance criteria, models and means of measuring success Conclusions References Appendix 1. Contributors to the SustainValue report Appendix 2. SustainValue roadmap. An overall view Page 4 of 54

5 Document summary information Authors and contributors Initial Name Organisation Role KP Katariina Palomäki VTT Author MR Markku Reunanen VTT Author KV Katri Valkokari VTT Author PV Pasi Valkokari VTT Author Workshop participants (See Appendix 1) Those who have commented the report (See Appendix 1) All All Contributors Contributors Disclaimer The content of the publication herein is the sole responsibility of the publishers and it does not necessarily represent the views expressed by the European Commission or its services. Page 5 of 54

6 1 Executive summary The overall goal of the SustainValue project is to develop industrial models, solutions and performance standards for new sustainable and more performing production and service networks. This report presents a roadmap for future sustainable development priorities within EU manufacturing industries. As a background orientation present literature of business models and value networks in manufacturing industry was searched. As a second step an expert workshop to collect raw data for the roadmap was organized followed by project core group iterations. The roadmap therefore crystallises the views of a group of experts. The views were collected in a systematic process and reworked by the core group of the project. The expert workshop utilised the ThinkTank web-based Group Decision Support System (GDSS) tool. The roadmap building process proceeded from defining the current state of sustainable business on the different roadmap levels - stakeholders and customer, business ecosystem, success criteria, and benefits and value - to discussing the changes that are required in order to have new sustainable and more performing production and service networks. The changes collected under the roadmap levels were categorised into changes that could take place in a short, mid, and long term. Also catalysts and obstacles for these development paths were discussed. On the grounds of the changes, major sustainability gaps in current business models for EU manufacturing industries were identified. The roadmap that was developed in the workshop and within the core group was divided into three sub-roadmaps that were: 1) Empowering stakeholders, 2) Increasing efficiency, and 3) Creating new performance criteria, models and means of measuring success. These themes also pull together the recognised sustainability gaps. First, relating to Empowering stakeholders, the following gaps were identified: (i) Need for better awareness and changed behaviour regarding sustainability issues such as limited resources, the three sustainability pillars and lifecycle thinking, (ii) Improved ways to demonstrate the benefits for customers and companies for developing their actions, products, processes and services to be more sustainable, and (iii) Standardisation and legislation that supports sustainable manufacturing. Second, relating to Increasing efficiency, the following gaps were identified: (i) New types of relationships and collaboration are needed between manufacturers and stakeholders, (ii) Efficiency in production and manufacturing as well as operational efficiency of products, systems and services have to rise, (iii) The focus of manufacturing has to change from products to new kinds of services and solutions, and (iv) Effective ways to deal with the new sustainability requirements of productservice systems have to be implemented in product development processes. The third theme, Creating new performance criteria, models and means of measuring success included: (i) The need to update current business models, and (ii) Making sustainability measurable. Page 6 of 54

7 2 Terminology Business architecture is a part of an enterprise architecture related to architectural organization of business, and the documents and diagrams that describe that architectural organization. (See Business ecosystem is the network of organizations including suppliers, distributors, customers, competitors, government agencies and so on involved in the delivery of a specific product or service through both competition and cooperation. The idea is that each business in the ecosystem affects and is affected by the others, creating a constantly evolving relationship in which each business must be flexible and adaptable in order to survive, as in a biological ecosystem. (See Business model model is a conceptual tool containing a set of objects, concepts and their relationships with the objective to express the business logic of a specific company or a company network. Therefore it has to be considered which concepts and relationships allow a simplified description and representation of what value is provided to customers, how this is done and with which financial consequences. (See Osterwalder et al. 2005) Business model is a plan which is implemented by a company to generate revenue and make profit from operations. The model includes components and functions 1 of the business, as well as the revenues it generates and the expenses it incurs. Carbon footprint is an indicator of total greenhouse gas emissions caused by an entity. It is the overall amount, expressed in terms of CO2 equivalents, of carbon dioxide and other greenhouse gas (GHG) emissions associated with a product, using LCA methodology. A carbon footprint is only one ecological footprint; other indicators include e.g. water footprint and services footprint. Lifecycle assessment (LCA) is a technique for determining the environmental impacts of products, processes or services throughout their lifecycle; from the extraction of raw materials to processing, transport, use and disposal. Lifecycle assessment is a derivation of the lifecycle cost concept, including evaluation of the social costs/benefits generated by the product during its lifecycle. The LCA procedures are standardized in ISO environmental management standards. Product data management (PDM) is the function for creating, managing and publishing product data to ensure information consistency throughout the lifecycle of a product. See also Product lifecycle management (PLM). Product lifecycle management (PLM) is the process of managing the entire lifecycle of products; from the design, production, support, and use to final disposal. The goal of PLM is manifold: to minimize waste and maximize the efficiency of a product to accomplish the expected functions covering the user s expressed and unexpressed needs; to create value for the producer, the service provider and the product owner. From a technical and business perspective, PLM is an integrated, IT 1 Business s component functions R&D, marketing, finance, human resources, manufacturing (Miltenburg 2005). Page 7 of 54

8 supported, approach to the co-operative management of all product related data along the various phases of the product lifecycle. This integrated approach is considered a leverage to develop and use a business strategy for creating and sustaining a product-centric knowledge environment that spans the entire lifecycle and networked organisations in the business ecosystem. (See Terzi et al. 2010) Remote collaboration is an activity that allows several people who are physically in different locations to communicate and interact with one other utilizing telecom networks and presence technologies. Stakeholder of a given organization is a person, a group of persons or an organization that affects or can be affected by the actions of the organization. Sustainability is a state that requires that humans carry out their activities in a way that protects the functions of the earth's ecosystem as a whole (ISO ). Note: Sustainability has an economic, an environmental and a social dimension. Sustainable manufacturing can be defined as the ability to address world-wide shortages of natural resources, to mitigate the excess of environmental load of manufacturing activities and to enable an environmentally benign lifecycle of products and services, while continuing to improve the quality of human life. This ability is developed based on a smart set of innovative methods, practices and technologies in the manufacturing field; moreover, regulatory measures and coherent social/economic behaviours of stakeholders are the main important drivers of sustainable manufacturing. Sustainable manufacturing objectives can be declined in well known sustainability s dimensions, i.e. economic, environmental and social dimension. (See Garetti 2009; IMS ) Sustainable manufacturing network is an organisational form which (i) targets to gain future competitive edge to all participants through interaction and collaboration, and thereby (ii) is able to balance the three key aspects of sustainability (environmental, economical and social aspects). Value network consists of organizations (companies) co-operating with each other to benefit all network members. In manufacturing industries lead producer and its suppleirs and customers form a typical value network. Page 8 of 54

9 3 Introduction The overall goal of the SustainValue project is to develop industrial models, solutions and performance standards for new sustainable and more performing production and service networks. According to the project s original work description, key challenges that sustainable manufacturing must respond to are: economic challenges, by producing effectively and efficiently and creating new services ensuring development and competitiveness through time environmental challenges, by promoting minimal use of natural resources (in particular nonrenewable energy) and managing them in the best possible way while reducing environmental impact societal challenges, by promoting social development and improved quality of life through renewed quality of wealth and jobs In proportion sustainability can be divided into economic, environmental and social factors (Figure 1). Figure 1. Factors of sustainability according to Rana 2011, p. 14 (adapted from Elkington , p. 73; Labuschange et al , p. 377; Elliot 2006, p. 13). 2 Since the early 1980 s Elkington has worked on what sustainable development might mean for business. 3 The article proposes a new framework to assess the sustainability of operations in the manufacturing sector. Page 9 of 54

10 Integrating these factors of sustainability into strategic decision-making is an essential prerequisite for moving towards sustainable development. At the enterprise level, products and services must be: safe and ecologically sound throughout their lifecycle; appropriate, designed to be durable, repairable, readily recycled, compostable, or easily biodegradable; produced and packaged using minimal amounts of most environmentally benign materials and energy; transported, stored, delivered, and commissioned for use in an eco-efficient, economic, and socially responsible manner. This report identifies and analyses the major sustainability gaps in current outlying business models for EU manufacturing industries of different size. The report presents a roadmap for future sustainable business model development priorities (Chapter 5). The current business models will be evaluated against this roadmap and gaps will be identified. There is no single way to create value from sustainability. Thus, within the implementation process value network specific recipes are needed, e.g. knowing where the biggest opportunities for value creation are in an industry and where the risks and barriers lie can serve as a guide for developing sustainability strategies. Therefore, as a background orientation we go through the present literature of business models (3.1.) and value networks (3.2.) in manufacturing industry. 3.1 Backgroundonthebusinessmodelsinmanufacturingindustry A business model provides a way for managers to analyse and communicate strategic choices (Seppänen 2008). However, while business models facilitate analysis, testing, and validation of a firm s strategic choices, a business model is not a strategy itself (Shafer et al. 2005; Magretta 2002). A business model provides a link between the strategy and operations/processes and enables exploitation of entrepreneurial opportunities (e.g. Hedman & Kalling 2003; Amit & Zott 2001) (Figure 2). Figure 2. Business model provides a link between strategy and operations & processes. Page 10 of 54

11 According to Seppänen (2008), business model is introduced as a generic term to describe the logic of what a firm does and how it does it. Business people have described the business model concept in following ways: Business model is a framework for making money and Business model describes how we are intending to make money. Different business models can be used at different levels of a company, at different times in the lifecycle of company / product / services (Betz 2002). According to Chesbrough and Rosenboom the business model concept should fulfil the following requirements (Chesbrough 2003; Chesbrough & Rosenbloom 2002): Articulate the value proposition i.e. the value created for users by the offering based on the technology; Identify a market segment, i.e. the users to whom the technology is useful and for what purpose, and specify the revenue generation mechanism(s) for the firm; Define the value chain of the firm that is required to create and distribute the offering outlined in the value proposition; Determine the complementary assets needed to create the offering and support its position in the value chain; Position the firm with the value network context, including identification of potential complementors and competitors; Estimate the cost structure and profit potential of producing the offering, associating the business model concept to value creation; Formulate the competitive strategy by which the innovating firm will gain and hold advantage over rivals and link the business model concept to strategy. Osterwalder and Pigneur (2010) have defined nine building blocks that can be used in describing a business model. These blocks are (Osterwalder & Pigneur 2010): 1. Customer segments - An organisation serves one or several customer segments - Defines the organisations a company wishes to reach and serve - Answers to questions of for whom are we creating value and who are our most important customers 2. Value proposition - Seeks to solve customer problems and satisfy customer needs with value propositions - Describes the content of the product-service system which aims at creating value for a specific customer segment - Values can be e.g. newness, performance, customisation, design, price, reduction of costs and risks, accessibility or usability 3. Channels - Value propositions are delivered to customers through communication, distribution and sales channels Page 11 of 54

12 - Channels are the customer interface and describe how a company delivers the value proposition to its customer segments - Includes communication, distribution and sales channel 4. Customer relationships - Describes which type of relationship a company establishes with a specific customer segment - Possible relationship types include personal assistance, self-service, automated services, communities and co-creation 5. Revenue streams - Result from value propositions successfully offered to customers - Represents the cash flows generated from each customer segments - Several ways to generate revenue: E.g. asset sale, usage and subscription fee, lending, renting, leasing, licensing and advertising - Pricing mechanisms have also a considerable effect on the revenue streams. The two main types of pricing mechanisms are fixed (predefined prices) and dynamic (market conditions affect the prices) pricing 6. Key resources - The most crucial assets for the success of the business model - The assets required to offer and deliver the previously described elements - Can be categorised into physical, intellectual, human and financial resources 7. Key activities - The most important things a company must do in order to be successful - Differ from company to company but can be roughly divided into three main categories: production (activities related to designing, making and delivering a product/service), problem solving (knowledge management and training is crucial) and platform/network (service provisioning as well as platform management and promotion is of great importance) 8. Key partnerships - Describes the network of partners and suppliers which enables the success of a company - The main motivations for creating partnerships are optimisation and economies of scale, reduction of risk and uncertainty, and acquisition of particular resources and activities - Different types of partnerships can be divided in strategic alliances between noncompetitors and competitors, joint ventures and buyer-supplier relationship (assuring reliable supplies) 9. Cost structure - The business model elements result in the cost structure - Describes all costs that incur when operating a business model - May be divided into two classes: cost-driven and value-driven. Usually, the business models have elements from both these extreme cases - Cost structure can have e.g. the following characteristics: fixed costs, variable costs, economies of scope and economies of scale Page 12 of 54

13 These building blocks are presented in a more compact manner in Table 1 below. Table 1. Nine building blocks of a business model (Osterwalder et al. 2005). Pillar Building block of the business model Description Product Value Proposition Gives an overall view of a company s bundle of products and services. Customer Interface Infrastructure Management Financial Aspects Target customer Distribution Channel Relationship Value Configuration Core Competency Partner Network Cost Structure Revenue Model Describes the segments of customers a company wants to offer value to. Describes the various means of the company to get in touch with its customers. Explains the kind of links a company establishes between itself and its different customer segments. Describes the arrangement of activities and resources. Outlines the competencies necessary to execute the company s business model. Portrays the network of cooperative agreements with other companies necessary to efficiently offer and commercialize value. Sums up the monetary consequences of the means employed in the business model. Describes the way a company makes money through a variety of revenue flows. In addition to these, many definitions of business models can be found in existing literature. The different approaches describe business models from several perspectives, e.g. value creation (Mueller-Stewens & Lechner 2003), case studies and experiences (Johnson et al. 2008), strategic focus (Stähler 2002; zu Knyphausen-Aufsess & Meinhardt 2002), capturing value from open innovation (Chesbrough 2003; Chesbrough & Rosenbloom 2002), and integration of all key aspects (Bieger et al. 2002). The analysis of these approaches detects similarities in the different models. It is possible to structure the key aspects into three dimensions: 1) offer and marketing model, 2) value creation model and 3) revenue mechanism. The table below summarizes the different approaches (Table 2). Page 13 of 54

14 Table 2. Summary of different business model dimensions. Offer and marketing model Value creation model Revenue mechanism Stähler 2002 Value proposition Architecture of value creation Profit model Bieger et al Goods and service concept, communication concept Configuration of expertise, Organization, Cooperation Profit concept zu Knyphausen Aufsess & Meinhardt 2002 Product/market combination Execution and configuration of key activities Profit mechanism Chesbrough 2003; Chesbrough & Rosenbloom 2002 Value proposition, market segment, competitive strategy Value chain, complementary assets, value network (and firm s position) Cost structure and profit Mueller Stewens & Lechner 2003 Product-service offer and commercialization Value creation Revenue model Johnson et al Customer value proposition Key resources and processes Profit formula Osterwalder & Pigneur 2010 Customer segments, value proposition, channels, customer relationships Key resources, key activities, key partnerships Revenue streams, price mechanism, cost structure A conventional business model for a manufacturing firm is to design, produce and deliver standard products and after sale services (extended products) to broad markets at high volumes. Firms in manufacturing industry are generally questing for increased market share by quicker product launches (time-to-market) and excellent brand management. Although firms have different business models, a generic business model can be defined as shown in Figure 3. In this business model there are four major factors i.e. resources, sales, profits, and capital, which are all described with inputs and outputs (Betz 2002). Page 14 of 54

15 Figure 3. Constructing a generic business model (Betz 2002). Resources and sales provide the inputs for the direct production transformations of a business operation: e.g. in manufacturing operations, material resources are manufactured into physical products for sale, or in service operations, requests for services are transacted into service sales. Profits and capital measure the value of the business operations. Profit measures the business efficiency the difference between prices and costs of sold products/services. Capital is a measure of business asset value, which defines the difference between equity and liabilities. Table 3 presents the basic idea of different generic business models and the competitive advantage of each model. The table also includes the necessary inputs and outputs for these six generic business models (Betz 2002). Table 3. Input and output for the six generic business models (Betz 2002). Business model Object Competitive advantage Input (Rationalize) Output (Optimize) Strategic finance To optimize both short term profits and long-term capital by rationalizing sales and resource utilization. Ability to optimize business comprehensively. Resource Sales Profits Capital Strategic response To optimize short-term sales and long-term capital appreciation by rationalizing profits and resource utilization. Ability to respond to market changes faster than competitors Resource Profits Sales Capital Strategic enterprise To optimize both short-term sales and long-term profits by rationalizing capital and resource utilization. Ability to optimize production effectiveness Resource Capital Sales Profit Strategic learning To optimize both short-term resources and long-term profit potential by rationalizing sales growth and capital utilization. Emloyees knowledge and skills to satisfy customers and build market. Sales Capital Resource Profits Page 15 of 54

16 Strategic firm To optimize both short-term resources and long-term capital appreciation by rationalizing sales and profit utilization. Ability to diversify the business model according to the industrial context. Sales Profits Resource Capital Strategic innovation To optimize both short-term resources and long-term sales potential by rationalizing the use of profits and capital to implement innovation. Ability to innovate. Innovation can be e.g. information or physical technology. Profits Capital Resource Sales 3.2 Backgroundonthenetworkapproachesinmanufacturingindustry In traditional manufacturing network, suppliers, lead producers (product companies or original equipment manufacturers (OEMs)) and customers can be defined as the most typical value chain roles. Thus, the business models have been rather similar and based on technology related competences, although some differences between competitive edges could naturally be found based on business relationships, processes etc. Anyhow, global distribution of work within manufacturing industry has challenged the traditional business models in western countries. The global dispersion and concurrent expansion of manufacturing operations (i.e. value chain activities) with the impact of emerging and existing external (macroeconomic stability, trade polices) and internal forces (process innovations, cost benefits, competition, corporate culture, organisational structure), has led to redefinition of manufacturing networks and value systems towards integrating sustainability. Respectively, the active discussion about service business and similar structural changes 4 in networks emphasise value co-creation between network actors. Also the growing complexity of products and their shorter lifecycles drive companies to collaborate in new ways within their supply chain. Thus, the core companies of supply chains (e.g. lead producers, product companies and OEM s) are asked to consider also the sustainability performance in their entire supply chain to cope with new requirements and interests growing from stakeholders. In the emerging integrated and networked production setting, much of the opportunity to address sustainability rests on the enhanced network management. Thus, core companies are looking for new approaches to manage sustainability performance effectively from sourcing and production, to distribution, product logistical support and afterlife. For instance, the trade-offs in the 4 The trend of customers, lead producers (like original equipment manufacturers and product companies) and their suppliers seems to be a forward transfer in their value chains. This means that customers and lead producers outsource manufacturing (give up earlier value chain phases) and their suppliers try to increase services (add later value chain phases and give up some of the earlier). Suppliers provide not only raw materials and finished products, but also transportation, energy, packaging, design and re-cycling services. Thus, growing number of system suppliers is part of this phenomenon. Page 16 of 54

17 internationally operating networks are no longer just about cost, service and quality but cost, service, quality and carbon. If the manufacturing network partners are not managing the future challenges around regulation, reporting and compliance assurance, scarcity of resources, or the effects of climate change on their business, then their ability to operate as a network partner could be dramatically affected. This could be fatal to their business. The focus of sustainability issues has, however, been both in the literature (for summary, see Seuring & Müller 2008) and in the company practices 5 on environmental green issues. Still, a recent executive study illustrated that how companies percetions about sustainability are changing 6. As in the past, the company representatives see the potential for supporting corporate reputation. But they also expect operational and growth-oriented benefits in the areas of cutting costs and pursuing opportunities in new markets and products. Value creation in manufacturing networks In the new network economy, the success of a firm depends on its strategic collaboration with other organizations that have an influence on the creation and delivery of its services or products. Manufacturing networks can, therefore, be defined as not only a new type of manufacturing system deriving new strategic capabilities and requiring design tools but also posing new theoretical questions about systems and decision processes (Shi & Gregory 1998, p. 196). The question of joint value configuration and creation within networks has been explored from several viewpoints. Fjeldstad and Stabell (1998) presented a framework for "value configurations" in which a "Value network" and Value shop are the two alternatives to Michael Porter's traditional concept of Value Chains. Later on, based on the notion of the value creation framework, Möller et al. (2005) have suggested three generic net types that are current business nets, business renewal nets, and emerging new business nets 7. Table 4 compares the key characteristics of these value creation models and illustrates their appearance in manufacturing network practises. 5 For example within its annual report PUMA represents The PUMA Sustainability Scorecard initiated ambitious goals for their suppliers to reduce 25% of their Environmental KPIs including water, waste and energy leading up to To assist its suppliers, PUMA initiated programs with third party service providers, and arranged capacity building programs in the countries where they do their sourcing. Similarly, NIKE points out their future vision of a closed-loop business model, which includes up-front design of products that can be manufactured using materials reclaimed throughout the manufacturing process and at the end of a product's life. 6 MacKinsey s online survey in June 2011 reached 3,203 executives representing the full range of regions, industries, tenures, company sizes, and functional specialties. According to this survey respondents at BtoC and BtoB companies diverge on the levers that could drive longer term value creation. Achieving higher prices or greater market share through sustainable products, committing R&D resources, and responding to regulations has more value potential for B2B companies, while those at BtoC companies see more potential in managing sustainability through the value chain,water use, and waste. (Bonini 2011) 7 In short, current business nets are value systems with a high level of determination and well-known and wellspecified patterns of activities and resources. As value systems emerging new business nets are characterized by radical changes and inherent uncertainty. In between these polar opposites are business renewal nets, which produce incremental local changes in existing value systems. Page 17 of 54

18 Table 4. Value creation models in manufacturing networks. Approach Value network types and their key characteristics Value configuration (Fjeldstad & Stabell 1998) Value chain (components as value element) Value shop (value based on competences) Value network (connections as value elements) Value continuum (Möller et al. 2005) Current business nets (efficiency of operations) Business renewal nets (incremental changes) Emerging new business nets (radical changes and uncertainty) Practical approaches in manufacturing networks Traditional supply networks Business enhancing networks, like service networks Innovation networks These all can be identified within sustainable value creation of manufacturing networks and they are all required for different purposes. First, the traditional supply networks have the focus on efficiency of processes - the roles and connections between actors are quite well defined. Secondly, in business enhancing networks the focus changes from physical components to competences, while actors try to solve customer s problems together. Thirdly, emergence of radically new business opportunities requires new connections and network members - often over industry sectors. As described above, the business models of network actors differ within these network types. Furthermore, each business network evolves over time as network roles, business models, as well as strategies of actors change. Managing this co-evolution implies an understanding of the rationales of network actors, e.g. customers, suppliers and other business partners. Collaboration and interaction is needed in order to uncover their views, strategic intents and perceptions. Already at the beginning of 90 s Normann and Ramirez (1993) argued that in today s networked environment, strategy is no longer a matter of positioning a fixed set of activities along a value chain. According to them the focus should be on the value creating system itself. In manufacturing industries value network consist of organizations (companies) co-operating with each other to benefit all network members. Lead producer and its suppliers and customers form a typical value network. Value system as defined by Miltenburg (2005) consists of the suppliers value chains (who provide input), core company s value chain (that produces products), the distributers and retailer s value chains (who distribute products to customers) and the customer svalue chains (who use the products in their own activities). In figure 4 we have illustrated this main value system as a value network (or extended enterprise) Page 18 of 54

19 The focus should be broadened from vertical supplier-lead producer-customer relationships to horizontal, collaborative relationships (Vallet-Bellmunt et al. 2011). Furthermore, based on system thinking the concept of business ecosystems 8 have been introduced to highlight the importance of a value system, where all stakeholders co-produce value and thereby, value from co-operation is also captured by all stakeholders (Figure 4). In addition to the main actors of a value network (lead producers, their suppliers and customers) also interests of other involved actors (external stakeholders) should be considered. Figure 4. Business ecosystem within manufacturing industry. As sustainable value creation in manufacturing networks requires connecting different (manufacturing and/or supply chain) decisions on different hierarchical decision levels to each other, and to their sustainable impact (Aronsson & Brodin 2006), business ecosystem approach was found appropriate to study the whole value system. Still, in order to define sustainability gaps during the roadmap process the stakeholders are divided to primary (e.g. actors of main value network) and secondary (e.g. other involved actors): 8 According to Moore (1996), business ecosystem is an economic community supported by a foundation of interacting organizations and individuals the organisms of the business world. This economic community produces goods and services of value to customers, who are themselves members of the ecosystem. The member organizations also include suppliers, lead producers, competitors, and other stakeholders. Over time, they co-evolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies. Those companies holding leadership roles may change over time, but the function of ecosystem leader is valued by the community because it enables members to move toward shared visions to align their investments and to find mutually supportive roles. Page 19 of 54

20 core company (lead producer/oem/product company), its suppliers and direct customers are primary stakeholders competitors, end customers (consumers in B-to-C sector),research institutions, public bodies, industry associations, non-governmental organization (NGO s), different interest groups and programs are secondary stakeholders Towards sustainable value networks Within manufacturing industry, the network approach has traditionally focused on supplier networks, e.g. value or supply chains. Furthermore, the different roots of approaches have guided their thinking to certain dimensions 9. Anyhow, the role of customers (and consumers) is changing towards increasing participation in the innovation and design processes (von Hippel 2005). Number of involved actors and networking models are growing in manufacturing industry, for instance the importance of different innovation platforms and communities as sources of knowledge is growing. Due to the continuous changes in business environment the present approaches have been reexamined, and the need to systematically examine the interconnections between the network actors has been identified (Dhanaraj & Parkhe 2006). Sustainability necessitates to manage transparency, interaction (feedback loops with customers, suppliers and competitors), and traceability of the manufacturing value networks. In future, companies will work more together with both their customers and suppliers when developing new products, as well as the sustainable features of the new products. To sum up, we define sustainable manufacturing networks as organisational forms which (i) targets to gain future competitive advantage to all participants through interaction and collaboration, and thereby (ii) is able to balance the three key aspects of sustainability (environmental, economical and social). 3.3 Theroadmappingmethodologyandprocess Visionary socio-technical roadmaps are visualisations of knowledge based on expert assessment. They combine societal and technological issues in relation to explicitly stated visions of the future. A roadmap usually integrates knowledge-content layers (e.g. drivers, markets, solutions, enabling technologies) with temporal dimensions (e.g. present, middle term, long term). The roadmap presented in this report can be called a visionary socio-technical roadmap. Such roadmaps are constructed to combine examinations on societal and technological issues in relation to explicitly stated visions of the future (see Ahlqvist et al. 2007, pp ). The idea is that the combined elements of the roadmaps have strong potential for producing the outcomes that each vision presents. Roadmaps strive to describe relations and potential causalities between the technological and societal issues mainly from the viewpoints of companies, R&D actors (research institutes, universities), governmental actors and non-governmental actors. However, it should be 9 For example the concept of manufacturing networks has its origin in operations management, and thereby it focuses on the nodes, while the concept of supply chain is related to logistics and focuses on the links (Rudberg & Olhager 2003). Page 20 of 54

21 mentioned that the roadmaps are not intended to depict the future in a deterministic way, i.e. we do not assume that any of the visions or roadmap explorations presented in this report will in fact become a reality. Thus, future development is likely to include some elements that are presented in these roadmaps, but there will also be new and surprising elements that obviously could not be taken into account when creating these roadmaps. (Ahola et al. 2010) Information on the roadmapping approach used can be found in Ahola et al. (2010); ICT for Environmental Sustainability. Green ICT Roadmap The roadmap presented in this report is the outcome of an expert workshop process and core group iterations. The roadmap therefore crystallises the views of a group of experts. The views were collected in a systematic process and re-worked by the core group of the project. The project s roadmapping workshop was held on June 23 rd, The expert workshop utilised the ThinkTank web-based Group Decision Support System (GDSS) tool. A total of 14 expert participants participated in the one-day workshop held in Espoo, Finland. Two experts attended the meeting online from a remote location. The roadmapping process included the following roadmap levels which were agreed upon at the project kick-off meeting held on May 26-27th, 2011: Stakeholders (e.g. authorities, industry associations, European Commission, NGOs, and customers) Business ecosystem Success criteria Benefits/value Catalysts and Obstacles The temporal dimensions applied were short term, middle term (roughly 5 years), and long term (roughly 10 years). The vision for the SustainValue project was defined at the kick-off meeting as follows: New forms of business models and value networks together enable knowledge-based transformation of the manufacturing industry and improve all three dimensions of sustainable value (economic, environmental, and social). Page 21 of 54

22 4 Current state of sustainable business models for manufacturing networks Chapter 4 presents the findings, identified in the expert workshop held on June 23 rd 2011, concerning the current status of aspects covered by the various levels of the roadmap i.e. stakeholders, business ecosystem, success criteria, and benefits/value. 4.1 Stakeholders The perspective of this report is that of a product manufacturer. Other terms used instead of a product manufacturer include e.g. production company, core company, lead producer and original equipment manufacturer (OEM). During the initial discussions the following stakeholder categorizations were identified/proposed. - Categorization by stakeholder type as internal or external stakeholders - Categorization by stakeholder type as primary or secondary stakeholders - Categorization by stakeholder group as for example: o Employees, staff, customers, users, commercial business partners (e.g. suppliers), competitors, other partner companies and organizations, investors, shareholders, governments, communities, trade associations, standardization bodies, "neighbours" (local authorities, councils, associations, etc.), European Commission, NGOs (Non-Governmental Organisations), political groups, etc. A stakeholder group can be characterised accordingly by its type: it may be either an internal or external stakeholder, or either a primary or secondary stakeholder. The categorization used mainly in the remainder is by type primary vs. secondary. According to Clarkson (1995), primary stakeholders are those without whose continuing participation the corporation cannot survive as a going concern. Primary stakeholder groups typically are comprised of shareholders and investors, employees, customers, and suppliers, together with what is defined as the public stakeholder group: the governments and communities that provide infrastructures and markets, whose laws and regulations must be obeyed, and to whom taxes and other obligations may be due. There is a high level of interdependence between the corporation and its primary stakeholder groups. (Clarkson 1995) Secondary stakeholders are other involved actors, who have an indirect influence over business transactions in which they do not participate actively. Secondary stakeholders include competitors, research institutions, public bodies, industry associations, NGO s, different interest groups and programs. According to Clarkson (1995), secondary stakeholders are defined as those who influence or affect, or are influenced or affected by, the corporation, but they are not engaged in transactions with the corporation and are not essential for its survival. The media and a wide range of special interest groups are considered as secondary stakeholders under this definition. They have the capacity to mobilize public opinion in favor of, or in opposition to, a corporation's performance. Page 22 of 54

23 4.1.1 Primarystakeholders Most of the findings concerning stakeholders and recorded by the expert group fall under the category of primary stakeholders. Most of the findings within this category, in turn, concern customers. Customers: According to the recorded findings, awareness of sustainability related issues among customers seems to be increasing significantly. This is cited to concern e.g. environmental issues in general, climate change and its consequences, and ethical issues. This in turn has led to a situation where customers are increasingly looking for e.g. green energy, protection of human health and environment, sustainable products, bio-products, ethically sourced products, and support services offered along the product lifecycle. Customers are also increasingly demanding information on the sustainability aspects of products and services. Customers are interested in, for example, information on the environmental impacts of the products they buy, re-manufacturing and recycling issues, knowing all the actors of the value network, and whether the actors are working ethically (transparency through the entire value network). The role of customers is cited to be changing towards increasing participation in the innovation and design processes. Even though awareness among customers on sustainability issues has increased considerably during the recent years, economic and investment decisions by producers and nations, and our behaviour as consumers, are still largely dominated by concerns over local issues and short-term thinking (Evans 2009). According to the recorded findings, in most cases customers are not yet willing to pay for better sustainability performance i.e. when bying products they expect to get the reduction in environmental load at the same price. The same is cited to apply to lifetime costs. When bying products customers expect to get the reduction in lifetime costs at the same purchasing price. One of the reasons for the unwillingness may be that companies were blamed for not having sufficient tools to demonstrate the benefits that customer gets if he/she invests in more sustainable products (e.g. in products that last longer). Suppliers & core company: According to the recorded findings, sustainability is becoming a competitive factor among product manufacturers, and more and more suppliers are becoming system suppliers, which means that they have to consider a bigger supply-chain than years before. This leads to a more systemic view for them ending up in more efficient operation in e.g. logistics, manufacturing, engineering, etc. Modern manufacturing processes also include a high degree of divided work, and sustainable solutions need to consider a way to integrate different stakeholders of the business ecosystem. Moreover, awareness of value-driven management is rising which offers a chance to implement related processes that controll sustainable values. Companies were blamed for not having sufficient tools to demonstrate the benefits that customer gets if he/she invests in more sustainable products (e.g. in products that last longer). Shareholders: According to Clakson (1995), a corporation itself can be defined as a system of primary stakeholder groups, a complex set of relationships between and among interest groups with different rights, objectives, expectations, and responsibilities. The corporation's survival and continuing success depend upon the ability of its managers to create sufficient wealth, value, or satisfaction for those who belong to each stakeholder group, so that each group continues as a part of the corporation's stakeholder system. (Clarkson 1995, p. 107) Page 23 of 54

24 The recorded findings suggest that shareholder value and satisfaction is often considered more important than the values and satisfaction of other stakeholder groups. Sustainable business models should consider the needs of all stakeholders, not only those of the shareholders. Employees: According to the recorded findings, there are development points in the internal sustainability (the satisfaction of employees) of a corporation. The internal sustainability should consider e.g. the income distribution, the safety of the working environment, the training courses, and the incentive systems. Employees also require a more comfortable working environment. It is argued that employees are proud of working in a company that creates sustainable products. Governments: Governments have set up targets for e.g. CO2 emissions and energy efficiency, which affect manufacturing industry. Governments also require companies to fulfil the current labour and environmental laws, but still no specific control on sustainability issues is mandatory. It was felt that there is an apparent need for governmental support and incentives for promoting environmentally sustainable manufacturing. This is an important role for the European Commission. Communities: Local communities were seen as an important driver for sustainable innovations because, in particular from the point of view of the social aspect of sustainability, the impact of a company on the local community can be high in some cases Secondarystakeholders Communities: Business communities were seen as a key driver for sustainable innovations, because communication is very fast and many different ideas come together through business communities. Public stakeholders: For more clarity, examples of public stakeholders in this context could be NGOs (non-governmental organizations), INGOs (international non-governmental organizations), trade associations, international organisations like UN, OECD, WBCSD, ILO, and international standards organisations like GRI, ISO. It was argued that public stakeholders are becoming more important when considering the business ecosystem and the three dimensions of sustainability (economic, environmental, and social). Pressure groups/politically-active groups: In Germany, for example, the activists of the green party and also those of other parties have driven, after the crisis in Japan, the "energy change", which means that the nuclear power plants will be shut off within 10 years, which, in turn, is a challenge for sustainable energy production. 4.2 Businessecosystem Organizations can make significant progress towards achieving sustainability through their own internal capabilities, but ultimately organizations can only be sustainable when the whole system, which they are part of, is sustainable (Jennings & Zandbergen 1995). Therefore, business ecosystem approach was utilized to figure out sustainability gaps in business models and value networks. At the business ecosystem and value network level, the key question would be: What are the effects of sustainable value creation on the business ecosystem? Page 24 of 54