To Create Shared Value, Adapt Your Business Model
Four-fifths of CEOs are experimenting with alternative business models or thinking of doing so.
Shared value is the idea that by addressing society’s needs and challenges,companies can create economic value in a way that also benefits society. Shared value seems promising, but many managers struggle to make it happen. NBS South Africa’s new report provides a better approach to pursuing shared value and business sustainability, by focusing on business models. Here, we preview research-based advice on managing business model innovation from the upcoming report and guide.
Why Business Models Matter
Business models have always been an integral part of business behaviour. However, diverse events have highlighted the role of business models as a new dimension of innovation. The Internet, post-industrial technologies such as nanomaterials, rising interest in renewable energies, and new forms of hybrid and social enterprises — all have broadened the discussion of innovation beyond product, process, or organizational innovation.
Accordingly, the 2015 IBM Global CEO report found that “four-fifths of CEOs are experimenting with alternative business models or thinking of doing so.” Figure 1 shows how business models expand the scope and reach of innovation.
Massa L., & Tucci, C. 2014. Business model innovation. In M. Dodgson, D. Gann, D., & N. Phillips. (Eds.). The Oxford handbook of innovation management: 420–441. New York: Oxford.
Today, both entrepreneurs and established businesses experiment with new business models that integrate ecological and social concerns. Justin Smith, Group Head of Sustainability, Woolworths, South Africa outlines how key this experimentation is to the firm: “Central to our Good Business Journey programme is challenging the business models we currently use, supporting innovation across our organization and value chain, and finding ways of collaborating with expected and unexpected partners to create shared value.”
Other businesses may provide a product or service for free to one stakeholder group that is in need and make money with customers who are better off (e.g. TOMS Shoes or Wonderbag). They may also offer a free, reduced-feature version of their service to make money with a premium version (e.g. the “social freemium model” adopted by Aravind Eye Care Systems). Models such as crowdfunding or product-service-systems increasingly support sustainable technologies, e.g. renewable energies.
WonderBag: “Buy one — give one”
In a “buy one — give one” model, typically sales in the developed world finance a “give-away product” in a developing country. WonderBag is marketed as the “first portable, non-electric slow cooker." For every Wonderbag purchased in the USA, one is donated to a family in need in Africa. The technology has four simple steps: “Boil it, bag it, stand it, and serve it.” Consumers bring food to the boil on a stove, put the pot, with the lid on, in the WonderBag and slow cook for up to eight hours, which can help save energy and time. The product and business model reduces energy use and gives communities access to cleaner cooking means.
For additional details, see main report.
Aravind Eye Care: "Social freemium”
Eye diseases are a severe problem in India. The major cause of blindness is cataracts, a form of blindness that can be cured by replacing the natural lens with an artificial one. Beyond cataracts, an estimated 20 per cent of India’s population is in need of some form of eye care; however, half of the Indian population cannot afford treatments. Aravind has developed the capability to offer high-quality eye care at costs unmet by any competitor worldwide. But this competitive position is not exploited to skim the vast Indian ophthalmic market, but passed on to the company’s patients. Aravind’s social value proposition is to offer medical services to those who can afford them (40 per cent of patients) and those who cannot (60 per cent of patients). This model is based on cross-subsidization between paying and non-paying customers, a model that can be called “social freemium.” Aravind is nevertheless a profitable healthcare business.
For additional details, see main report.
Interest in business models is thus not just about the pursuit of above-average returns, it is also about creating ecological and social value. Increasingly, rethinking only product technologies or processes seems inadequate to address challenges such as green and smart transportation, recycling and closed-loop production cycles, information consumption, health care, or better nutrition. These challenges require rethinking the way firms create, deliver, and capture value — the core elements of a business model.
Tap Business Models for Shared Value & Business Sustainability
NBS South Africa’s research project, Business Models for Shared Value, offers new insights into how firms can use shared value and business sustainability as creative drivers for business model innovation and transformation. Florian Lüdeke-Freund, Lorenzo Massa, Nancy Bocken, Alan Brent, and Josephine Musango have drawn on a systematic review of research and practice on the topic, gleaning insights from more than 180 articles.
This research describes:
How shared value relates to earlier concepts, such as business sustainability.
Why business model innovation is important for shared value and business sustainability.
How traditional perspectives on business models are transformed in business models for shared value and business sustainability.
Florian Lüdeke-Freund, Lorenzo Massa