The interplay of business models with sustainable innovations: evidence from Italian SMEs in the energy sector

Responsible and green innovation

The interplay of business models with sustainable innovations: evidence from Italian SMEs in the energy sector

Eleonora Annunziata, Francesco Rizzi, Marco Frey

A growing body of literature characterizes the challenging role of companies for achieving the sustainable development. Companies are both the root cause and solution of many environmental and social problems (Schaltegger at al., 2016). In this context, business models have been considered as a remarkable contributor of sustainable development by creating superior customer value and positive impact on society (Lüdeke-Freund, 2010). Thus, the integration of sustainable dimension into business models can assume different configurations. Therefore, scholars and practitioners are exploring the role of sustainable business models in achieving both economic prosperity and positive effects for the natural environment and society (Boons et al., 2013).

Early work on “sustainable business models” (alternatively defined as “business models for sustainability”) dealt with organizational principles of corporate sustainability (Stubbs and Cocklin, 2008) or with the identification of business models as means to re-think products, processes and organizations based on life cycle approach (Hansen et al., 2009; Wells and Nieuwenhuis, 2004). Other studies investigated the relationship between business models and business cases for sustainability (Schaltegger et al., 2012).

All these approaches of investigation focus on organizational value creation with the integration of social and environmental values that can characterize sustainable business models together with related organizational, market and societal transformations. However, an unequivocally recognized definition of sustainable business model has been debated. In this regard, Boons and Lüdeke-Freund (2013) described a set of requirements for each constituting element of sustainable business models: value proposition provides ecological and/or social value associated with economic value through the bid of products and services, supply chain must be regulated by sustainable principles, customer interface must implement a strong relationship with customers and other stakeholders to assume responsibility for production and consumption paradigms, and financial model should distribute equitably economic costs and benefits  among all actors involved. Moreover, Lüdeke-Freund (2020) argued that the implementation of sustainable business models is a means to foster new business opportunities for sustainability and stimulate organizational development.

Thus, sustainable business models represent a mediating device for implementing a strategy aiming at the business case for sustainability and creating fit between different areas of a firm and its business environment as well as social actors (Schaltegger et al., 2012; Lüdeke-Freund, 2020). Therefore, the analysis of the constituting elements of sustainable business models might help understanding how companies react to changes in the business environment to tackle environmental and social issues through the implementation of sustainable innovation. 

Since sustainable innovations pursue the spreading of clean technologies, the implementation of new organizational forms, or the resolution of social issues, business models assume different configurations (Boons and Lüdeke-Freund, 2013).

Lüdeke-Freund (2020) argued that business model related to clean technologies can be distinguished: “(a) new business models can employ given technologies; (b) given business models can take up new technologies; and (c) new business models can be triggered by new technologies and vice versa”. However, business models can support the understanding of the logic of production and consumption systems (Wells, 2008) and assume a role of mediator between how technologies are made and how they are used (Boons and Lüdeke-Freund, 2013).

Organizational innovations represent the change in the way of doing business toward sustainable development and related business models to promote organizational and cultural changes for answering increasing stakeholder demands but also alternative economic paradigms to integrate needs and aspirations of sustainability (Stubbs and Cocklin, 2008; Boons and Lüdeke-Freund, 2013). Therefore, sustainable business models result in an aggregate of several organizational dimensions (Boons and Lüdeke-Freund, 2013).

Social innovations require business models able to support product and services with a social purpose or entrepreneurial and managerial activities aiming to develop social enterprises (Boons and Lüdeke-Freund, 2013). In this context, sustainable business models have the primary purpose of changing the focus of value creation. Seelos and Mair (2005) highlighted that earning money stems from social value creation.

These three main categories of sustainable innovations highlight the strong relationship with business models. Lüdeke-Freund (2020) pointed out the need for an alignment between sustainability innovations and business models to increase the likelihood of business success of these innovations. Therefore, different degrees of business model innovations are required. Schaltegger et al. (2012) identified three typology of business model innovations: defensive, accommodative and proactive. Defensive strategies consist of business model adjustment to safeguard existing business model through risk and cost reduction measures according to compliance perspective. Accommodative strategies require the implementation of some improvements and integrations of current business model by considering environmental and social issues. Proactive strategies pursue the redesign of business model according to sustainability principles.

All these possible configurations of business model innovation for sustainability can make “challenging for firms to understand how to innovate their business models” (Evans et al., 2017). Bocken et al. (2014) thus categorized possible configurations of sustainable business models in eight archetypes to identify and promote mechanisms and solutions that might strengthen the embeddedness of sustainability into business purpose and processes. The archetypes aim to foster the development of innovation capacity and new development paths. The analysis stated the importance to investigate sustainable business models according to the level of innovation and technology, system perspective, innovative collaborative approaches as well as education and awareness.

Therefore, investigation on specific archetypes can support firms in the identification and design of strategies for implementing suitable sustainable business models in more polluting and responsible for greenhouse gas emissions sectors such as the energy sector (Latapí Agudelo et al., 2020). The energy sector, indeed, is facing a deep transformation through the development of renewable energy sources and consequently the increasing decentralization of energy supply whereby passive end-users become active market players. This dynamic is triggered by innovation such as smart meters and ICT tools and increasing environmental challenges in terms of reduction of CO2 emissions through the adoption of cleaner technologies (Kanellakis et al., 2013). For this reason, the study focuses on sustainable business model archetype “substitute with renewables and natural processes” that consists of the substitution of finite materials with renewable materials through to renewable energy supply systems (Bocken et al., 2014). By assuming this archetype, the study aims to investigate the role of innovative sustainable business models in supporting the development of sustainable innovations such as geothermal heat pumps (GHPs), an attractive and sustainable technology for space heating and cooling. It analyses how new ways of developing value proposition, supply chain, customer interface and financial models are the main strategic tool to contribute to the diffusion of decentralized and sustainable thermal energy supply at residential and commercial level.

#business model innovation. business model for sustainability #small medium enterprises #sustainable energy #sustainable innovation