Why it's time to disrupt old business models

Why it's time to disrupt old business models

Shift key photo by Stephen Rees via Shutterstock

The idea of business model innovation — that a company could launch a new business model never conceived of before, or transform an existing business model — long has captivated business leaders. Leading academics focused on the topic, including Clayton Christensen, Michael Porter and the late C.K. Prahalad, have discussed the merits of disruption, the value to be created and the fortune to be gained by shifting business models. And yet, executives are often held back by vested interests in their current approach: "If it ain't broke, don't fix it."

For sustainability leaders, innovation is key to meeting human needs within planetary limits. They know that many existing business models are predicated on the assumption that natural and social capital are in virtually limitless supply, and that mispriced resources and other market distortions make some models more competitive than they otherwise would be.

Yet, it is a hard sell to convince a CEO to change a business model based on threats or opportunities that have not yet materialized. Innovation, therefore, often remains piecemeal or incremental, rather than transformational, fundamental and system-wide. But as global trends — environmental, social, political, technological — continue to shift the foundations of our current business models, incremental innovation will become less and less effective in enabling companies, industries and whole economies to adapt and succeed. There is an urgent need for fundamentally different approaches to value creation.

Where to start?

Examples of sustainability-related business model innovation abound, with new ones arriving almost daily, but we often find ourselves returning to the usual suspects, such as Zipcar or Airbnb. So we set out to better understand which new business models are emerging, where innovation is happening, and how both new and established companies are experimenting to embed sustainability into the underlying structure of their businesses. 

In our recently released report, "Model Behavior: 20 Business Model Innovations for Sustainability," we reviewed more than 80 company examples and identified 20 distinct business models falling into five categories. In the report, we offer a closer look at what's occurring in each model to produce more sustainable outcomes. Our findings, in brief below, shed light on both what's working and what's possible.

Findings and implications

In reviewing examples of business model innovation models, "Model Behavior" reveals a number of themes relevant to the practice of business model innovation for sustainability.

1. Every exchange in a value chain provides opportunities for innovation and impact. We argue that business model innovation for sustainability boils down to creating a novel form of exchange at some point along a company's value chain. Each exchange that a company engages in — with customers, employees, owners or community — therefore presents an opportunity for a potential shift in model, and also in social or environmental outcomes.

2. Companies that have demonstrated a business model innovation often have done so by shifting incentives in the value chain. By understanding what each stakeholder wants or needs, and responding to that, business model innovations take shape.

3. The largest companies tend not to be the source of new models, but they can help evolve and scale them. Most business model innovation emerges from companies that design more sustainable models from the start. Nevertheless, established companies have an important role in helping to bring these models to maturity.

4. Business model innovation doesn't happen in a vacuum. We must recognize how any model — sustainable or not — is dependent on surrounding conditions, and that new models often are enabled by, or arise organically from, changes in those conditions. The key is to increase our individual and collective ability to recognize and respond to (and where necessary, directly engineer) circumstances that will support new, more sustainable ways of doing business.

The challenge of change

If it were easy to be a sustainable business — to create, deliver and capture value in a way that meets human needs within planetary limits — everyone would be doing it. But typically companies devote the majority of their resources to optimizing current business models, especially by applying and improving incrementally on existing capabilities. This is because business models ultimately are based on a common understanding among individuals, such as company managers, employees and investors, of what business they are in and how they create value. Shifting these mental models to evolve business models remains a powerful barrier to innovation.

But just because business model innovation requires a mental leap and requires potentially painful shifts within a company doesn't mean it isn't possible or necessary. In fact, when it comes to survival, some established companies will shift their models, and will do so quickly.

Shift key photo by Stephen Rees via Shutterstock