Managing Director & Senior Partner, BCG Henderson Institute Fellow
This article is part of an ongoing series that describes the concept of “Sustainable Business Model Innovation” (SBM-I) and how companies are putting it to use.
The societal context for business is changing. Planetary boundaries (the borders within which humanity can continue to develop and thrive), societal needs, and changing social licenses to operate are constraining companies; their opportunity space is narrowing, restricting their ability to pursue business value creation as usual. Companies need a new approach to release these constraints and expand the opportunity for new growth and value creation.
Adopting sustainable business model innovation (SBM-I) enables companies to refresh business strategies and create innovative business models to optimize for business, environmental, and societal value. SBM-I helps companies create environmental and societal surpluses (net environmental and societal benefits) and connects them to the drivers of business advantage and value creation. In this way, companies boost and deliver total shareholder return, total societal impact (the total benefit to society from a company’s products, services, operations, core capabilities, and activities), and environmental, social, and governance performance.
To understand just how far along companies are in creating sustainable business models, we examined 300 corporate sustainability initiatives. Of those, 85 were cases of a sustainable business model innovation creating environmental and societal surpluses and business value. While all these companies took significant steps on their quest for SBM-I, few captured the full potential of SBM-I.
We classified 50% of the cases as initiative leaders; in these cases, companies used innovations in products or processes and changes to the value chain to mitigate negative environmental impacts and to enhance the brand. Twenty-five percent took an extra step and were ecosystem leaders; these cases reimagined value chains and business ecosystems to potentially address the root causes of environmental and societal needs and to compete differently. And 25% emerged as front-runners; these cases reimagined the business entirely and reshaped the boundaries of competition to address the root causes of environmental and societal needs at scale for growth and advantage.
The front-runners exhibit seven characteristics. They adopt sustainability as advantage, anchored in a clearly defined purpose; optimize the robustness and resilience of the business model; aim and optimize for holistic environmental and societal impact against six dimensions; combine multiple archetypes of SBM-I; use digital and technology to achieve scale impact and competitive economics; build new partnerships for impact and reach; and reinforce and expand advantage by creating value for all stakeholders. These characteristics enabled the front-runners to break economic constraints, access new markets, expand scale with the right economics, and change ecosystem dynamics to enhance competitive advantage.
To help companies achieve sustainability as advantage, we propose adopting a four-step innovation cycle: