The business case for sustainability – business model transformation for a future-proof industry

Due to digitization and climate change, business model transformation of manufacturing companies is indispensable. How can companies design this in a self-determined way and benefit from unknown opportunities at the same time?

It has been clear no later since the adoption of the Paris Agreement in December 2015: industry will undergo substantial transformation in the coming decades. However, the path ahead is still largely unclear and for many companies questions arise to what transformation really means, what opportunities and risks the transformation entails and how companies can largely control the transformation process themselves. It seems that reducing and managing the CO2 footprint is only one factor. Looking at the science, the overarching goal of the Paris Agreement to limit global temperature rise due to climate change well below 2 degrees can only be achieved by changing business models in industry (see e.g. IPCC or Kellogg School of Management).

Reduce uncertainty and identify potentials

To what extent shall a person in charge of an industrial company understand this as danger, since it seems that the basis of economic success is being taken away? In fact, we hear more often about such apprehensions from industry. From our experience, however, these are usually associated with uncertainty, many companies cannot yet assess the specific relevance of climate change and sustainability. However, as soon as perspective has changed a little, it can quickly become clear that a sustainable transformation of companies, including a change of the business model, offers numerous opportunities to improve one’s own competitive position, not least by strengthening one’s own innovative strength and participation in new markets.

But how can such potentials be leveraged and thus, in addition to economic success, a positive effect on the environment and society be achieved? Basically, and not surprisingly, the first thing to do is to become aware of the opportunities and risks that sustainability entails. It is important, and this is new, to choose a systemic approach for that, i.e. to consider a holistic view of the company and its corporate environment from different perspectives. This allows conclusions to be drawn about:

–  Drivers of sustainability for a company.
Is it the customers, the investors and/or new social and political framework conditions?

–  Opportunities for innovation.
What added value can I offer in the future and therefore also support my customers of tomorrow with their challenges?

–  New value-adding partnerships.
With what kind of cooperation can I leverage innovation potential?

Holistic and connected viewpoint as success factor

Insights in these areas as promised by a systemic approach can hardly be created with mainstream strategy analysis instruments. In particular, future innovation potentials and partnerships often lie outside the box of traditional thinking. Here is an example: A car paint manufacturer identifies business potential by cooperating with a car paint shop, offering an IT solution for the end customer. This allows the end customer to individually design his desired solution, also considering sustainability criteria for example. In addition to increased customer loyalty, the paint manufacturer also benefits from more accurate and reliable planning data. The result is both a more efficient use of resources and a possible slight increase in profit margin. This approach probably would not have been detected in most traditional innovation processes.

Many industrial companies also face a challenge in strategic decision-making processes: How can different corporate goals be taken into account, e.g. for product and service development and also for investments into new production facilities? In addition to economic success, almost all companies pursue other objectives, and often ecological and social goals have already been defined at company level. In reality, there are trade-offs between these goals, but how do you reflect them in decision-making processes and to allow for transparent and conscious decisions? A systemic approach offers the opportunity to make conflicting goals visible and to take trade-offs into account transparently – in line with overarching corporate strategy.

Integrating and connecting new perspectives is therefore not only an instrument for managing the challenges and opportunities of climate change, more and more, it becomes a success factor for corporate management in general. It opens the door for a transformation towards a future-proof business model.

Developing the courage to rethink business models

But what does this mean, in concrete terms, for application in practice? As already indicated, the first step is to familiarize yourself with your own ‘business case’ of business transformation. This leads to an understanding of how sustainability could be integrated into one’s own business model – which is the basis for developing insight and courage required to initiate change processes. The learning process associated with this also creates confidence that necessary skills for a long-term transformation can be acquired in the company and anchored across all areas and employees. Our experience demonstrates this as well: a small change in the way we look at things can ‘create wonders’ by making previously unknown potentials visible and paths for a successful transformation recognizable.

Tell us: Do you already know your business case for sustainability or what questions are still open to you? We are looking forward to exchanging experiences!

We look forward to your suggestions and questions, juts send us a personal message.

To dive deeper:

Together with international partners, team members of ENDURE consulting have co-developed an online seminar series for ‘design of sustainable business models’. By means of case studies, interactive discussions and design exercises, participants develop both an understanding for the relevance of sustainability for business models and the confidence to start their own process for sustainable business model development.

Here, you can find further information about the series and registration.

Image source: iStock.com/NicoElNino