The economic sustainability of business models is assessed on the viability of their cost structure and revenue streams. The eco-innovation credentials of business models can be verified by their economic viability as well as the life-cycle wide environmental impacts of internal processes, and products and services that deliver the value proposition. The environmental impacts to be considered in this context include the use of resources such as materials, energy, water, biomass and land and the decrease in emissions of harmful substances, like CO2, per unit output.
A difficulty of attribution arises when considering possible wider impacts of diffusing business models and, in particular, their potential contribution to transformative eco- innovation. As this would require a conceptual and empirical review of entire value chains, this study remains largely illustrative. It is, nevertheless, an important starting point since the observations are rooted in empirical evidence on companies.
The impacts can be assessed at the company level and include, for example, internal benefits from the reduced use of raw material as a result of material efficiency gains. More importantly, however, the effects should be understood from the perspective of the life cycle performance of products and services. This implies considering the entire value chain of a product or service. Vertically integrated companies may control several elements of a value chain, however, most value chains comprise many interlinked companies and other organisations including research institutes and public authorities.
The analysis below indicates potential downstream or upstream effects of business models adapted by eco-innovative companies. For example, large-scale car sharing schemes may lead to upstream effects for distribution, design and manufacturing. Figure 7 illustrates the main phases of value flows. Firstly, the new value proposition directly influences the value creation process between the focal organisation and its downstream or customers and upstream or partners, suppliers and “neighbours” in the value chain.
In this context, the eco-innovative practices of individual companies or networks of companies and other organisations, such as in industrial symbiosis, have a direct impact on other companies in the value chain. Direct or first–order value chain
impacts of new processes can include, for example, decreased volumes of materials purchased due to material efficiency gains or change of suppliers due to material substitution. Another example is environmentally responsible procurement practices of large retailers impacting on the extraction or production practices of their suppliers. In this context, the upstream effects in the value chain can include suppliers of raw materials reconsidering their practices as a result of changes in the focal organisation. It is important to note that the change of first-order relations and the possible reconfiguration of the value chain due to business model innovation may have significant benefits for the focal company beyond reduced cost or better quality of materials or components purchased. Value chain reconfiguration may also result in gaining a bigger market share and also new customers, as well as in acquiring new knowledge and learning in collaboration with new partners and this, in turn, may inspire the development of additional innovative products or services.
Figure 7 Value Creation in the Perspective of the Value Chain and Wider Impacts
Source: Technopolis Group based on adapted business model canvass by Osterwalder & Pigneur (2010)
The first-order effects may cause further changes in the value creation process along the entire value chain, spill over into other value chains and eventually lead to changes in the value systems. Such indirect or second-order effects may be analysed both upstream and downstream in the value chain. Tracking the possible value creation effects at both the value chain and value system levels allows the wider impacts of business model changes to be discussed.
The conceptual model includes the possible wider effects of eco-innovation business models. These can occur, on the one hand, in the sphere of production and service development and, on the other hand, in the sphere of the use of new products or services. Wider effects in the production system may include impacts on economic, social and environmental dimensions including making cost savings, creating new
markets, reconfiguring value chains and substituting production methods. Wider effects in the sphere of use may include impacts on various dimensions and result in the substitution of service and/or products, the reduction of the overall environmental impact, or even a change in customers’ behaviour. More importantly, changes in the use patterns of products and service may have a significant impact on production and make a change in existing business models inevitable. The wide diffusion of specific business models and related products and services may also result in systemic change. In the case of business models based on a network of organisations that collaborate closely, as in industrial symbiosis, the analysis of the business model can shift from the individual focal organisation to the network. In fact, the analysis of such a multi- actor business model can be carried out at both the individual level and the level of the entire network. The latter approach considers the value exchange within the network as an internal process and the upstream and downstream effects as being external to the network. For example, the internal effects include the value proposition of the entire industrial district involved in industrial symbiosis toward its customers while the external includes the value implications for suppliers of the district. The wider effects are considered in a similar way as in individual cases but the sheer scale of multi-actor collaborations may make it easier to attribute to them to wider social and environmental impacts. Figure 8 outlines the process of value creation in models involving multiple actors.
Figure 8 Value Creation in Multi-Actor Business Models