A new paper, Breakthrough Business Models: Exponentially More Social, Lean, Integrated and Circular offers a practical guide to create new forms of financial and extra-financial value for healthier, safer, and better-educated populations. The new paper was written by Volans and commissioned by the Business and Sustainable Development Commission. It argues that the Sustainable Development Goals (SDGs) are a much more radical agenda than most business leaders have yet realized, describing the SDGs as a purchase order from the future, aimed at global business leaders to understand the potential they present.
According to report co-author John Elkington, this has profound implications for the way businesses think and act. “Too many business leaders around the world have used dilute versions of the sustainability agenda as a comfort blanket when faced with systemic challenges. Our ‘Breakthrough Business Models’ paper is a practical guide for those who recognise that the challenge is no longer how to build the business case for action, but how to evolve and deploy the business models needed to create new forms of financial and extra-financial value,” said John Elkington, co-author of the paper and executive chairman of Volans Ventures. “A new mindset is needed, one that focuses not only on the shrinking of a business’s negative impacts but also on the expansion of its positive impacts—and, crucially, that moves from incremental to exponential rates of change.”
Companies need to determine whether their business models are fit for the changing market and geopolitical realities ahead. Business is at a critical juncture, and to meet the objectives outlined by the SDGs, companies must embrace four critical hallmarks of these breakthrough business models: social, lean, integrated and circular. In the paper, the authors define these characteristics as:
- Social: Delivering both financial and extra-financial value through positive impacts for people in the present and the future
- Lean: Optimising the use of all forms of capital, from physical and financial through human and intellectual to social and natural
- Integrated: Managing financial and extra-financial value creation across economic, social and environmental systems
- Circular: Sustaining inputs and outputs at their highest value in both technical and biological cycles
Crucially, the paper urges companies to apply an exponential mindset to each of these four characteristics—to aim not simply for a 1% or even 10% improvement but for 10-fold or greater. Business leaders should look for these new exponential models because industry after industry is facing unprecedented market disruption from a new breed of insurgents, enabled by digitalisation, argue the authors. Change as usual, let alone business as usual, is no longer an option.
Consider the energy industry. Leading power utilities in the EU lost over half their value—more than €500 billion—in just five years. Why? In part, because of regulatory and political pressures squeezing coal and nuclear. And in part, because of an exponential growth in the availability of renewable energy—coupled with plummeting production prices.
A senior executive from one European energy firm put his company’s predicament particularly candidly: “Our business model’s toast!” Reinvention, in other words, is the only way to stay in business.
Another example is the car industry. Two years ago, at the Los Angeles Auto Show, Lyft president and co-founder John Zimmer delivered an ultimatum to industry incumbents: “You can fight [the end of car ownership],” he warned, “and that will probably not turn out well. Or you can acknowledge that this is happening. This is real, serious, and going to change your world.” His message was met with stunned silence, followed by a slow hand-clap, a mark of strong disapproval.
But just two years later, attitudes have shifted dramatically. GM has made major strategic investments in both Lyft and Cruise, a start-up building software for autonomous vehicles. Meanwhile, Uber, founded just eight years ago, now has a market valuation higher than major incumbents like Ford, Honda and GM.
“What’s happening to the car industry is a striking example of the way disruption happens,” says Elkington. “What seemed impossible two or three years ago now seems virtually inevitable. Many other industries are facing a similar imperative to reinvent themselves. And business models are key to whether or not all of this proves to be sustainable.”
For companies to succeed in tomorrow’s world, mindsets, technologies and business models all need to embrace exponential dynamics.
About the Business and Sustainable Development Commission
The Commission’s goal is to make a powerful case for why the private sector should seize upon sustainable development as the greatest economic opportunity of a lifetime. The Business Commission’s flagship report, to be launched in January 2017, will quantify the economic prize of the Sustainable Development Goals (SDGs), as well as articulate the prerequisites needed for the private sector to realise this opportunity and drive inclusive growth. The report will serve as the foundation for launching initiatives to inspire and mobilise the private sector to achieve the SDGs. To learn more visit www.businesscommission.org and follow us on Twitter, Facebook, or LinkedIn.