BREAKTHROUGH BUSINESS MODELS: EXPONENTIALLY MORE SOCIAL, LEAN, INTEGRATED AND CIRCULAR

A paper from Volans commissioned by the Business and Sustainable Development Commission

September 2016 This paper was produced by external consultants and commissioned by the Business and Sustainable Development Commission. The contents reflect the opinion of its authors and do not necessarily represent the views of the Commission. Readers may reproduce material for their own publications, as long as they are not sold commercially and are given appropriate attribution.

Copyright Business and Sustainable Development Commission. This work is licensed under a Creative Commons License Attribution- NonCommercial 4.0 International (cc by-nc 4.0).

Volans Business and Sustainable 2 Bloomsbury Place Development Commission London WC1A 2QA c/o Systemiq United Kingdom 1 Fore Street London ECY 5EJ +44 (0)20 7268 0390 [email protected] [email protected] www.volans.com www.businesscommission.org www.projectbreakthrough.io

ISBN: 978-0-9562166-6-3 Breakthrough Business Models 1

Breakthrough Contents Business Models Exponentially more Executive Summary 3 Introduction 6 social, lean, integrated and circular 1.0 Breaking Down 1.1 Change Goes Exponential 8

1.2 Business Models Evolve 12

2.0 Emergence 2.1 Breakthrough Exponentials 15

2.2 Social X 18

2.3 Lean X 21

2.4 Integrated X 24

2.5 Circular X 27

3.0 Breaking Through 3.1 Conclusions & 30 Recommendations

Annexes 1 Glossary of Business Models 32

2 References 34

3 Other Volans Publications 36

Breakthrough Business Models 2

Acknowledgements

The main authors of the report were John Elkington, Jacqueline Lim and Lorraine Smith of Volans, with thanks to Richard Johnson and Sam Lakha for their invaluable support.

We are particularly grateful to Alex Evans, Jeremy Oppenheim and Melinda George at the Business and Sustainable Development Commission for their help and guidance throughout.

We are indebted to our reviewers, who included: David Bent of Forum for the Future, Lynelle Cameron of Autodesk, Paul Ellingstad of PTI Advisors, Amanda Feldman of Bridges Ventures, Tony Greenham of The Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA), Geoff Kendall of theFuture-Fit Foundation, Charmian Love of Corporate Impact X, Geoff Lye of SustainAbility and Volans, Richard Northcote of Covestro, Kavita Prakash- Mani of Grow Asia. Michael Sadowski of Nike, and Susanne Stormer of Novo Nordisk. All remaining faults are very much our own.

Thank you, too, to our Project Breakthrough partners at the UN Global Compact for their commitment and collegiality.

And huge thanks to Rupert Bassett for his wonderful design skills.

Dedication

We dedicate Breakthrough Business Models to the memory of Dr Pamela Hartigan, a Volans co-founder among many other things, whose extraordinary life ended on the day the report was completed. Breakthrough Business Models 3

Tomorrow’s business leaders But, even more importantly, an old Executive understand that truly sustainable economic order is now coming apart development is becoming a mainstream at the seams, with a new one struggling Summary priority for a growing number of markets to be born. and, in the process, for an ever- extending list of major companies. Economic historians know that such They sense that this is no longer periods are very tough on incumbents, “simply” a matter of reputation and whether they be companies, industries trust, but of long-term competitive or even entire economies. advantage, security and survival. Whichever sectors they may operate Some watch in growing trepidation in, all businesses now need a much as market insurgents launch new clearer sense of the direction of market offerings in the sustainable development travel—followed by access to the best opportunity space, with the potential to available people, technologies and disrupt incumbent companies and value above all business models. The old webs. And the best among them now approach of simply signing sustainable tell their colleagues and their investors business charters or producing annual that they must learn to think differently— sustainability reports is a baseline and act accordingly. activity, the entry tickets to playing by the new rules. As a result, the spotlight There is still much cherry picking, of is shifting from the business case for course, with self-serving tokenism and, action to the business models needed among politicians, much kicking of cans to deliver against the new market down the road. Meanwhile, too many priorities. business leaders still claim to have “embedded” the sustainability agenda, when at best they have taken on board A radical growth agenda elements of the closely linked Corporate Social Responsibility and Shared Value Breakthrough Business Models, agendas. All good, as far as they commissioned by the Business go, but with system change now on and Sustainable Development the agenda they do not go nearly far Commission, concludes that enough. the United Nations’ Sustainable Development Goals (SDGs) are a more radical agenda than most business “To change something, Business case to business models leaders yet realize. They imply a shift from incremental to exponential build a new model One reason for the relatively slow mindsets and ambitions; from our progress is that the first-mover current focus on the negative impacts that makes the existing advantage in this field has been of economic activity to the deliberate model obsolete.” consistently overrated—with many generation of positive impacts; and companies choosing to shelter from the business case for action to a R. Buckminster Fuller behind their sector leaders or adopt a reconsideration of business models that moderately fast follower approach. ensures industries are fit for tomorrow’s very different market and geopolitical Iconic companies like Interface, realities. Natura or Novo Nordisk may now make significant percentages of their Launched early in 2016, the premium revenues in this space, but Commission is probing four key areas: these are still extraordinary companies doing extraordinary things. They have 1 The size of the economic prize brought unusual levels of imagination, that will be within reach if the world ingenuity, courage and stamina to achieves the SDGs, as well as the bear where most companies have only sector-level transformations that will begun to scratch the surface. be needed.

But if capitalism is to survive and thrive, 2 The new business models being today’s extraordinary must become pioneered by both insurgents and tomorrow’s ordinary. One key question: “radical incumbents”, and how these How quickly will this happen? Our are breaking with tradition. message in this report: Quicker than most of us imagine. Why? Because the 3 New financial models that sustainability agenda is beginning to align financial value creation with push into the commercial mainstream. high environmental and social performance.

4 A new social contract between Business as Usual business, government and society. Breakthrough Business Models 4 Executive Summary

Think Exponential 5 But the leaders spotlighted in the Think Integrated following pages are not simply letting Our central argument can be The third imperative is to Think go. They are playing into—and helping summarized as follows: Integrated. There is growing build—the new order. And, in the interest in Integrated Reporting, process, they are evolving new forms 1 with sustainability accounting and of value across our four key domains: Think Sustainably disclosures converging with financial Social, Lean, Integrated and Circular. Leaders know that the rules of the accounting and disclosures. But game are about to change faster integrated accounting and reporting As we head into the year 2017, which than at any time in their working lives. across multiple forms of capital is marks the thirtieth anniversary of the Simply parroting the latest sustainability only part of the challenge. To break Brundtland Commission report, Our jargon won’t make the cut—indeed through, we need to evolve solutions Common Future 2, we have a timely the entire Sustainability Industry must that are integrated across—and opportunity to critically reflect on what undergo a radical reinvention, involving impact—every level of the system. In has worked—and what hasn’t. defragmentation and re-capitalization, tomorrow’s capitalism, this will mean if it is to tackle its current weaknesses, seamless data flows from farms, Achieving exponential progress will including intense siloing, internal fisheries and factories right out to the require a scale of collective effort rarely competition and a Babel-like confusion biosphere, oceans and atmosphere. seen outside wartime conditions. of terminologies. The result: new forms of market We call on business leaders—and intelligence that most business leaders the wider Sustainability Industry—to 2 do not yet know that they will soon embrace this agenda. And we outline Think Exponential find indispensable. four recommendations to this end. As leaders learn to Think Sustainably, Among next steps, we must: they will also need to learn to Think X, 6 shorthand for Think Exponential. In the Think Circular — Spur a mindset shift from same way they once looked to activists The fourth imperative is to Think incrementalism to increasingly and social entrepreneurs for evidence Circular. Going—or thinking—in circles exponential, experimental, of where markets were headed, they used to be seen as a bad thing, breakthrough thinking that must now engage a very different set but now concepts like the Circular understands business as part of of players. These new players are not Economy and Cradle-to-Cradle wider social and natural systems, happy with 1% or even 10% year-on- Design are gaining real traction. This accepting that many current business year improvements, instead pushing aspect of the Sustainability X agenda models will become obsolete. towards 10X—or 10-fold—improvements runs directly counter to the linear over time. And in Thinking X, business take-make-waste model of capitalism, — Create market intelligence and leaders need to think of four key but the accelerating push towards a forecasts that track progress against domains where the X agenda is already low carbon economy—with the new the SDGs and next generation playing out. emphasis on carbon productivity—will value creation, and build supporting catalyze closed-loop value webs and platforms that track the performance 3 business models. of sustainability-oriented business Think Social models in real time. The first imperative is to Think Social. This is not simply about embracing social Building the new order — Continuously review the implications media and networks, but positioning and potential applications of business for a world pushing from We see emergent examples—though emerging technologies, some of 7 billion to 10 billion people within a few fully formed—of each of the which are flagged in Figure 2 (page few short decades. This builds on key characteristics of breakthrough 10) and develop them so that, at the work of social entrepreneurs and business models outlined above. best, they provide powerful solutions intrapreneurs, and impact investors, But the defining element of each to the needs flagged in the SDGs— moving us all into areas like behavioral case in which we see great promise or, at worst, they do not undermine and cultural change. is the exponential dimension: “The the SDG process. incremental mindset focuses on 4 making something better,” as Mark — Reboot the Sustainability Industry Think Lean Bonchek of Shift Thinking recently so that it, too, uses mindsets and The second imperative is to Think Lean. explained on the Harvard Business business models that help drive and The triple bottom line agenda—now Review website, “while the exponential shape the next wave of breakthrough also embraced by the burgeoning global mindset makes something different. change. B-Corp movement—expanded the focus Incremental is satisfied with 10%. from eco-efficiency to new forms of value Exponential is out for 10X.” 1 creation—and destruction. Now there is a need to pull together movements To succeed in the next economic working on lean production, lean start- wave, as the new economic order ups and frugal innovation, and those emerges, businesses must let go of aiming to create new forms of efficiency the old ways of doing things—keeping across all major capitals (e.g. physical, the valuable parts and discarding financial, human, intellectual, social and those that harm wider economic, natural capital). social and environmental systems. Breakthrough Business Models 5 Executive Summary

Characteristics of Breakthrough Business Models Critically, the SDGs, with their 2030 milestone, require a new mindset— an exponential mindset— and, in turn, a retooling or abandonment of many current business models.

Social X Lean X Breakthrough business models will be Breakthrough business models will be social, delivering both financial and lean, optimizing the use of all forms extra-financial value through positive of capital, from physical and financial impacts for people—in the present through human and intellectual to and in the future. social and natural.

Pages 18–20 Pages 21–23

Integrated X Circular X Breakthrough business models will be Breakthrough business models will be integrated, managing financial and circular, sustaining inputs and outputs extra-financial value creation across at their highest value in both technical economic, social and environmental and biological cycles. systems. Pages 27–29 Pages 24–26 Breakthrough Business Models 6

Change or die. Industry after industry Our analysis suggests that we are Introduction now faces this disorientating market heading into a period of growing ultimatum. In the European Union, turbulence, a period of exponential The needle is leading energy utilities lost over half their change, disruption and uncertainty. value—more than €500 billion—in just Bad exponential outcomes threaten shifting from a few years as they were squeezed by to take us towards climate chaos, the constraints on coal-fired and nuclear collapse of ocean ecosystems and incremental to power stations. But an equally important what is increasingly known as the factor was the exponential growth in “Sixth Extinction.” 5 Good exponential exponential the availability of renewable energy, outcomes can close the gap between necessitating systemic changes in where we are and where we need to change transmission grids.3 be as the world population accelerates towards 10 billion people. We see similar dynamics in the automotive industry. At the Los Angeles These changes are powered by Auto Show a couple of years ago, Lyft emerging macroeconomic trends president and co-founder John Zimmer as much as by novel technologies delivered an ultimatum to the industry and business models. Section 1 of this that, perhaps more than any other, report (Breaking Down, pages 8-14) shaped the twentieth century. “You can explores key aspects of the economic fight [the end of car ownership],” he context within which the UN Sustainable warned, “and that will probably not turn Development Goals (SDGs) will be out well. Or you can acknowledge that addressed through into the 2030s. this is happening. This is real, serious, and going to change your world.”4 The very existence of the COP21 climate agreement, and of the SDGs, The response? The room, full of underscores the growing influence incumbents from the worlds of auto of the sustainable development dealing, parts manufacturing, insurance agenda. Yet the process of convening and regulation, was stunned into silence. COP21 and developing the SDGs also Then they started a slow hand-clap, spotlighted the highly counter-productive signalling their intense disapproval of fragmentation and under-capitalization what they were being told. of what we will label the “Sustainability Industry”. This spans multiple sectors of But there were one or two notable the economy developing solutions for exceptions. GM president Dan Ammann SDG priority areas. was one. He promptly pulled Zimmer aside and the two quickly agreed a US$500 million GM investment in Lyft, The elephant of sustainable valuing the smaller company at US$5.5 development billion. A few months later, Ammann pulled off a similar coup withCruise , In this context, it’s tempting to reference a startup building software for that age-old parable from India, of the autonomous vehicles. blind men encountering an elephant. Each one feels a different part of the The implications of autonomous vehicles elephant’s anatomy, a tusk, for example, for the future of cities has only just begun or a leg, tail or trunk. The result is that to be understood. Quite apart from the each asserts his own view of what the safety benefits, huge areas of land could object is: a smooth pole, a tree, a brush be freed up for other uses, including or a snake. the sort of green space needed to cool cities in the midst of accelerated global We see parallel outcomes in the world warming. of sustainable development. The SDGs “The room, full of are perhaps the most striking example incumbents from the to date, representing vastly different Living in Exponential times elements of society and business, and worlds of auto dealing, representing one multi-faceted milestone A new commercial reality is emerging, a in what ultimately must be a much longer parts manufacturing, new market normal. Most obviously, the term and more ambitious agenda. drivers include innovative technologies insurance, and regulation, and business models, but the reverses was stunned into silence. recently experienced by established models of globalization and the Then they started a slow mainstreaming of the sustainability agenda also signal other deep currents hand-clap…” now in play.

Breakthrough Business Models 7 Introduction

Enter the exponential mindset, 2 Lean X 2017 as a milestone year embracing this complexity, and marking In business, the word “lean” links to a quantum jump in terms of ambition. several concepts—including the lean These are not the only elements of the This worldview accentuates an existing start-up movement, lean manufacturing, rapidly evolving sustainable business trend, which sees an evolving shift from lean services, frugal innovation and agenda, but they are likely to be old business strategies aiming to cut more. Tomorrow’s business models make-or-break. Clearly, there will be negative impacts and externalities, to must build on this momentum, using real and sometimes painful tensions new ones designed to boost positive resources effectively, creating no waste between these different trajectories. impacts and externalities. and maximizing value across entire “Lean” achievements may sometimes value networks. They must optimize compromise “Social” targets, for Centrally, it sees the economy as value creation across all forms of example, while what some see as part of the wider web of life. And, capital, from conventional forms like an “Integrated” solution may not because it is open to the intricacies physical and financial capital, through automatically be “Circular”. Managing of this wider system, it acknowledges newly understood forms like human the relevant interactions will be a critical that business cannot do all of this and intellectual capital, to tomorrow’s task for leaders, both in business and alone. But it stresses that the private understanding of social, cultural and elsewhere. But, once again, the direction sector potentially has unrivalled power, natural capital. They will need to of travel is clear. We are heading into a leverage, and flexibility to catalyze and generate market-relevant value without period that is already attracting labels drive the necessary market change. depleting extra-financial capital. like the “Great Disruption” and the “Great Where others see risk, with the right Convergence”. Expect to see multiple encouragement and incentives, the 3 Integrated X elements of the various sectors with private sector can see off-the-scale Businesses that integrate into their potential to deliver against the SDGs opportunities. models an understanding of the needs priorities, either deciding or being forced of present and future generations, for to come together in new configurations multiple capitals and across entire value and constellations. Four Breakthrough Exponentials networks, must become the norm. This entails measuring and managing the The implications for the Sustainability To help business succeed in the new financial and extra-financial impacts of a Industry are not yet clear, but Section order, mindsets, technologies and company’s value creation processes— 3 (Breaking Through, pages 30–31) business models all need to embrace aka its business models. This, in turn, focuses on the pivot that the industry exponential dynamics. This imperative will involve re-examining externalities— must now execute. is now being signalled both by the positive and negative, tangible and direction being taken by the disruptive intangible—and internalizing them in As the opportunities spotlighted in the businesses emerging from places many cases. Integration, here, means SDGs and elsewhere become clearer, like Silicon Valley, and by the level of that by succeeding as a business, a the flow of capital towards this space ambition evidenced in the SDGs and company creates restorative value for will build. The pace of mergers and COP21 climate agreement. society and the environment, while acquisitions will accelerate. And the seeking to eliminate any activities that need to balance sometimes competing Section 2 (Emergence, pages 15–29) undermine our ability to thrive both financial and extra-financial priorities will explores four exponential elements today and into the future. It also means not go away. There is a huge opportunity likely to define tomorrow’s business an active consideration of how system- to use the milestone year of 2017 models. If we are to have any chance level operating conditions can be (Brundtland Plus 30) to co-evolve a new of achieving the SDGs on schedule, changed for the better. vision and clearer market roadmap for business models must be designed the period to 2030 and beyond. from the outset to deliver positive social 4 Circular X and environmental outcomes at an All businesses must strive to become increasing scale and accelerating pace. completely circular, their operations We describe the Four Breakthrough designed to sustain products, Exponentials, as follows: components, and material inputs and outputs at their highest utility 1 Social X and value at key points in the cycle.6 Tomorrow’s business models must Crucially, the circular economy concept deliver financial and extra-financial distinguishes between technical and value by generating positive social biological cycles. In both domains, the impact. In the process, business emerging discipline of biomimicry will leaders must ensure they do not be increasingly vital, ensuring business undermine other key societal priorities. neither creates waste, nor undermines Most businesses are social to a degree essential material and nutrient cycles, or already, in that they employ and wider ecological and social systems. serve people. Indeed, this has been a pivotal argument for one-dimensional capitalism apologists, who see financial value creation as enough in and of itself. But for the SDGs to be achieved, businesses must recognize, operate and thrive in a world well beyond their four walls, and this means contributing to a healthier, safer and better- educated populace as a direct result of their business models. Breakthrough Business Models 8

The future promises, or threatens, to But the evidence suggests that the real 1.0 take us towards either breakdown or world behaves differently. Economies breakthrough. Yet even most board and have pulses, rhythms and cycles. Breaking C-suite members who have bought into Down the sustainability agenda in general—and But confronted with the same economic the SDGs in particular—are generally far data, different people may connect from sold on the idea that exponential the dots in very different ways. So, change is now inevitable, let alone for example, two of the last century’s desirable. But the evidence suggests most influential economists, Nikolai 1.1 that this is indeed the case. Kondratiev and Joseph Schumpeter, saw strong evidence of long wave cycles Change Goes Few business leaders will need to be of investment and divestment in our Exponential told that we live in unusual times. As economies. their historic archenemy Lenin once put Acceleration drives it: “There are decades when nothing They more or less agreed on the happens—and there are weeks when frequency, causes and implications of breakdown—not just decades happen.” 2016 has seen weeks these cycles. Their thinking, whether breakthroughs like that. So why is this happening— or not acknowledged, underpins much and why now? of today’s analysis of macroeconomic trends. Using their framing and definitions, there have been five Connecting different dots long wave cycles since the Industrial Revolution—with a sixth now building, Human brains and PowerPoint incline as shown in Figure 1 (below). towards straight lines when mapping the future, extrapolating from the present.

Figure 1 Long Wave Economic Cycles Rolling 10-year yield on the S&P 500 since 1814 until March 2009 (%PA) Source: Volans (based on Allianz Global Investors and Datastream)

20%

1830–1880 1880–1930 2nd Wave 3rd Wave Railways Electrification 1780–1830 Steel Chemicals 1st Wave Steam Engine

10%

0%

1837–1843 1873–1879 1929–1939 Panic Long Depression Great Depression 1800 1820 1830 1840 1850 1860 1870 1880 1890 1900 1910 1920 1930 1940 Breakthrough Business Models 9 Breaking Down Change Goes Exponential

By contrast, other analysts see just two We stand on the brink of a technological One cycle ends, another begins waves, with author Kevin Kelly, former revolution that will fundamentally alter executive editor at Wired, talking of an the way we live, work, and relate to The common thread through all of era of “Artificial Power”, accelerated by one another. In its scale, scope, and these analyses is that there are long the Industrial Revolution, now giving way complexity, the transformation will wave cycles in our economies, and that to a third wave of “Artificial Intelligence” be unlike anything humankind has we now find ourselves at a moment in or “Artificial Mind”. This usefully captures experienced before. We do not yet history where one great wave is fading the profound impact that digitalization is know just how it will unfold, but one while another is building. now having. thing is clear: the response to it must be integrated and comprehensive, The dark blue line in Figure 1 (pages 8–9) Back in the 1980s, the late futurist involving all stakeholders of the global tracks the latest in a series of five long Alvin Toffler saw three great waves of polity, from the public and private waves since the Industrial Revolution innovation: the “Agricultural Age,” the sectors to academia and civil society. building on Nikolai Kondratiev’s analysis. “Industrial Age” and now the “Information The First Industrial Revolution used It shows Wave 5 transitioning to Wave 6.7 Age.” More recently, Klaus Schwab of water and steam power to mechanize This shift is a contributory factor, stirring the World Economic Forum talked production. The Second used electric a seething brew—even a breakdown of of three waves to date—with a fourth power to create mass production. The sorts—of social, economic and political now building. His 2016 book The Fourth Third used electronics and information realities. These, in turn, have fuelled the Industrial Revolution is short, clear and technology to automate production. Now Brexit “Leave” vote, the stunning rise of required reading. His perspective runs a Fourth Industrial Revolution is building Donald Trump’s political insurgency in as follows: on the Third, the digital revolution that the United States, and growing criticisms has been occurring since the middle of around the world of current models of the last century. It is characterized by a globalization. fusion of technologies that is blurring the lines between the physical, digital, and biological spheres.

Rolling 10-year yield on S&P 500 Broad arcs of Kondratiev Waves Linear ‘take-make-waste’ paradigm Limits to growth/planetary boundaries paradigm 1970–2010 5th Wave Information Technology Communications Technology 1930–1970 4th Wave Petrochemicals Automobiles 2010–2050 6th Wave

2010–2050 Breakdown

1929–1939 1974–1980 2007–2009 Great Depression 1st and 2nd Oil Crisis Financial Crisis 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 Breakthrough Business Models 10 Breaking Down Change Goes Exponential

There’s nothing new under the sun, Between the onset of Wave 5 and that At its heart, this paradigm—or they say. We have been here before. of Wave 6 (Figure 2, below), the world’s worldview—was rooted in the belief that Some of the technologies that helped human population increased by 3 billion natural resources and environmental drive innovation and growth in earlier people. The leading edge of technology sinks for emissions were effectively economic cycles are shown above laid the foundations for Wave 6, but limitless and free. The consequence: it each of the wave peaks (in blue text). the technologies now emerging will was assumed that we could take, make At the foot of the diagram are some key bring very different possibilities—and and discard with little regard for the wider downwave events, including the “Panic” challenges. As a result, the range of systemic implications. of the late 1830s and early 1840s, the industries being disrupted is expanding “Long Depression” of the 1870s, the rapidly. The downsides of this paradigm have “Great Depression” of the 1930s, the been increasingly clear, however, from first and second “Oil Crises” of the One possible way for business leaders ozone holes and climate change, 1970s, and the most recent financial to think of this involves viewing the through to the prediction that by 2050 crisis, the so-called “Great Recession”. SDGs as a purchase order from 2030 there could be a greater weight of The downwaves began when a given for business and government action plastics in the world’s oceans than of set of technologies began to run out of today (Panel 1, page 11). fish.8 And these downsides are having steam. significant social implications as well, typically hitting the world’s poor hardest. Paradoxically, in the wake of COP21 The paradigm is shifting and the SDGs, we might now ask More hopefully, the orange line in Figure whether the Sustainability Industry The notion that scientific paradigms 1 (pages 8–9) tracks a paradigm that is also in danger of running out of shift was introduced by Thomas Kuhn has been evolving since around 1960. steam? Stand back, and it is clear in his book The Structure of Scientific This acknowledges planetary boundaries that the Sustainability Industry Revolutions, published in 1962. The red and real limits to some forms of has evolved wholly within Wave 5 line in Figure 1 (pages 8–9), overarching economic growth.9 It also tracks—more realities. Often, too, it has evolved in the waves, sketches the rise and or less directly—the appearance of the response to growing concerns about impending fall of an economic paradigm Sustainability Industry, which for decades problems caused by Wave 3 and 4 that has fuelled and informed all five has been trying to encourage business industries, for example, oil, chemicals, long wave cycles to date. to embrace a new worldview. automobiles and electrification, and the accompanying resource-extracting mindsets.

Figure 2 Characteristics of Waves 5 and 6 Source: Volans

Wave 5 Wave 6

Period 1980-2015 2016-2050

Global population 1980 4.4 billion 2015 7.35 billion

Social tensions 1% vs. 99% Young vs. old

Defining technologies Information & communication Drones, artificial intelligence (AI), technologies (ICT), particularly internet, big data, virtual reality, internet of things search engines, GPS and mobile (IoT), robotics, autonomous vehicles, phones, digitalization, social media, nanotechnology, low carbon technology, genetic engineering solar energy, smart grids, synthetic biology, geoengineering, blockchain

Star entrepreneurs Berners-Lee, Bezos, Gates, Jobs, Diamandis, Musk, Polman—and thousands Ma, Page & Brin, Yunus of people we haven’t yet heard of

Disrupted sectors ICT, media, retail, finance, Wave 5 sectors, plus automobility, early impacts on energy food, health, education, security

Impact Measuring/reducing negative impacts Identifying/delivering on unmet needs

Big ideas Limits, Sustainability Abundance, Anthropocene, Resilience

Sustainability focus Avoiding Breakdown Achieving Systemic Breakthroughs Breakthrough Business Models 11 Breaking Down Change Goes Exponential

Civil society movements often struggle Many Brexit voters (typically older and to gain traction, but sometimes they, more conservative) were looking for The downsides of this too, go exponential. “Consider these simplicity, predictability, control, safety numbers,” Michael Northrop (Director of and order—precisely the things that a paradigm have been the Sustainable Development Program major paradigm shift blows apart. increasingly clear, however, at Rockefeller Brothers Fund, a leader in fossil fuel divestment) emailed us, It is an uncomfortable truth that Wave from ozone holes and “In September 2014, managed 6 will disrupt and render obsolete investment committed to divesting from much of the politics and many of the climate change, through to fossil fuels was US$52 billion. Exactly business models established in earlier the prediction that by 2050 two years later, the figure is expected to waves. The timing of the crossover be US$5 trillion.” point between the old and new there could be a greater paradigms is a matter of conjecture, Paradigm shifts don’t come easy, though the transformation is likely weight of plastics in the however. Things can go backwards as to be well under way by 2030. One world’s oceans than of fish. well as forwards. As an example, recent thing is clear: our earlier obsession political turmoil in Europe and North with demonstrating the business case America has been read by senior figures for action is about to shift irretrievably in China as evidence that the whole to a new focus on business models— globalization project itself may now be and breakthrough business models in under threat. Huang Yiping, a member particular. of the country’s central bank monetary policy committee, noted that Brexit could mark a “reversal of globalization.” 10

You could also see the Brexit vote as a visceral, knee-jerk rejection of the complexity, unpredictability, diversity, blurring and integration that the impending global transformation for sustainability now requires.

Panel 1 2030 calling

Imagine this. Your cell phone rings. So how would today’s business leaders As the benchmarks change, further The apparent source of the call initially respond to this very explicit purchase seismic shocks will reshape the has you on the point of hanging up. order from the future? What products landscape of leadership, with those It sounds like a hoax. The caller says and services would they be instructed topping such rankings viewing the world they are from the world of 2030 and to expedite—and which sectors would of 2030 and beyond—aka the future offers to give you the ultimate insider be warned to throttle back on or be we want—as a key stakeholder, even a intelligence on tomorrow’s markets. abandoned entirely? potential customer. If the call comes in, If you can just resist the urge to hang take it. Short of that, imagine what the up, you might benefit from profound Among other things, the world of 2030 future might want to buy, invest in or insights into the future of value (and would likely urge a new social contract vote for in today’s world to meet wealth) creation. between business and society. It would tomorrow’s needs. flag and celebrate socially oriented Short of our receiving that call, or leadership in today’s world. finding the equivalent of Dr Who’s time machine or the modified DeLorean Consider what happened when the in Back to the Future, the SDGs are Harvard Business Review revamped the probably our best guide to what the analytics used to pick 2015’s CEO world of 2030 needs us to invest in of the Year.11 Fully 20 percent of the and vote for today. The 17 Goals and scoring shifted to environmental, social 169 targets can be seen as a purchase and governance (ESG) factors. As a order from the future, specifying result, Amazon’s Jeff Bezos fell from a range of social, environmental No.1 position to 87th position, while governance and economic needs likely Novo Nordisk’s Lars Rebien Sørensen to shape and drive the global economy leapt into pole position (page 18–19). in the coming decades. Breakthrough Business Models 12 Breaking Down

1.2 “Our business model’s toast!” That’s how But, as we argued in our 2009 report a senior executive from a major power The Phoenix Economy, times of profound Business utility described to us the challenge now change can open up unparalleled facing his company and its sector. But opportunities for those who have a clear Models Evolve he quickly went on to say that Enel is idea of where they are headed. That’s And not just acutely aware that it faces profound our core assumption in what follows.13 structural problems, and is working hard in business to transform its business model. In the process, the company is using the SDGs Business is make-or-break to frame its corporate strategy and re- engineer the way it makes money. At a time when governments are struggling to keep up with events, The Sustainability Industry has been the role of business—specifically working on the business case for change larger companies—will be even since before the dawn of the twenty- more important. Here’s how Harvard first century. Much of that work took the professors Robert Eccles and George business model for granted, whereas the Serafeim explain the power of larger questions asked revolved around which businesses in today’s world: risks or opportunities might be financially material over a meaningful timescale. Globalization has concentrated economic power within a group of large Today there is an accelerating shift in companies who are now able to change leading companies—from business case the world at a scale historically reserved modeling to the role of business models for nations. Just 1,000 businesses are themselves in delivering new forms of responsible for half of the total market value. Get the business model right, they value of the world’s more than 60,000 are concluding, and the business case publicly traded companies. They virtually more or less falls into place. control the global economy. […] By 2010 the world’s largest 1,000 companies made US$32 trillion in revenue. They No silver bullets employed 67 million people directly, and had a total market cap of US$28 trillion. Many business leaders have been That’s equal to 49 percent of total world delighted by the open recognition in the market cap. framing of the SDGs that business has a critical role to play in their delivery. They They note that the largest 1,000 see this as an historic step forward. companies and their supply chains have Many also understand that these Global huge impacts, both for good and ill: Goals require a switch in focus from corporate social responsibility and even They create goods and services for shared value approaches, to system customers, wealth for their shareholders, change strategies based on stretched and jobs for millions of people. They ambitions, new technologies, new also consume vast amounts of natural business models, and active market resources, pollute the local and global shaping. environments at little or no cost, and in some cases limit employees’ well-being But growing numbers are signalling that if wages and working conditions are business cannot do this on its own. As inadequate. These latter, undesirable Royal DSM CEO Feike Sijbesma has practices make our business-as-usual explained, “No-one can solve today’s society unsustainable.14 challenges alone. There are no silver bullets.” 12 Meanwhile, some analysts A growing number of top executives There is a growing shift poring over 2016’s geopolitical and have begun to question whether economic runes warn of a possible issues like human rights, access to in focus away from disintegration of the entire post-WWII medicine, water security or climate order. This seems alarmist, though change might not be legitimate strategic the business case recent trends suggest that the most concerns—and, in some cases, huge and towards the role ardent champions of both globalization market opportunities. The Shared Value and technology are at risk of becoming movement plays energetically into such of business models in their own worst enemies. areas, building out from earlier work on the business case for change. delivering multiple forms Whatever your viewpoint of technology of value. or globalization, it is hard to shrug off the growing sense that an old economic order is now coming apart, often faster than the new one is taking shape. Against this backdrop, truly sustainable development on the scale suggested by the SDGs, and in the defined timescales, looks distinctly less likely. Breakthrough Business Models 13 Breaking Down Business Models Evolve

As the financial materiality of a widening In the simplest terms, it’s how an In the process, traditional barriers are range of issues has been demonstrated, enterprise makes money. But we prefer breaking down—between sectors, as in the cases of BP, VW or those a more holistic view—that business disciplines and agendas. As Kaplan impacted by the Panama Papers, there models describe how organizations sums up the trend, “We already see has been growing interest in business viably create and capture value—as for-profit social enterprises, non-profits models that might address the relevant suggested by The Business Model with for-profit divisions, and for-profit challenges and opportunities. In Japan, Innovation Factory. companies with social missions. for example, convenience retailer Traditional sector lines are blurring.” 7-Eleven woke up to the fact that the To our considerable surprise, as we aging of its customer base in the country talked to business people around In this report, we spotlight this blurring where it has the most stores would the world, we discovered that many with examples such as Pakistan’s be a significant issue, both for its own struggled to succinctly describe the DoctHERs, delivering radically business and for the nation. It launched business models used by their own more affordable—yet still for-profit— a member-based meal delivery service companies, supply chains and industries. healthcare for and by women (page that has taken off across most of its And those who did manage to do so 23), or the industry-blending efforts of franchises (Panel 2, page 14). used very different terms. Things are energy companies Enel and National complicated further by the fact that there Grid, partnering with car company For those wanting to rethink their are so many business models now in Nissan to profitably link companies business models, there is a wealth play, as indicated in Annex 1 (pages and electric car drivers into the power of manuals. Among the most 32–33). grid (page 17). Our new online platform, comprehensive is The Economist Guide Project Breakthrough, continues to to Business Modelling.15 We also provide feature other examples.17 a compiled list of some 80 business Business models— models from various sources in Annex not just for business Stand back and it is clear that business 1 (pages 32–33) – a number of these models, at all scales of enterprise, will models are beginning to take shape in It is likely that most elements of the be make-or-break for the SDGs. Take some of the examples that are beginning business models that will dominate Wave a look at Panel 2 (page 14) where we to deliver on the SDGs. Our aim here 6 are already visible somewhere in the suggest a simple tool for organizations is not to design tomorrow’s business world, like early mammals scurrying to assess their business models. We models. Instead, it is to forecast the likely around the feet of soon-to-be-extinct often focus our attention on large direction of travel informing tomorrow’s market dinosaurs. Meanwhile, it is businesses because of their scale and business model innovation. important to remember that business potential impact, but we also recognize models aren’t just for business. that small insurgents and disruptors have critical roles to play. Indeed, many Is your business model at risk? So says The Business Model Innovation are likely to have a bigger impact on Factory’s founder, Saul Kaplan. He notes how Wave 6 takes shape. How to tell if your business model is at that, “business model innovation is on risk? One set of clues comes from Salim the critical path to transforming important Ismail and his team in their insightful social systems including education, So how will we think of business book, Exponential Organizations. Based health care, and government.” 16 models tomorrow? on their analysis, if your business— and business model—has any of the The core idea here is that any As Wave 5 fades and Wave 6 builds, following characteristics, it’s time to organization that wants to be relevant, there will be an accelerating tempo worry: and deliver value at scale, must clearly of booms and busts. 2016 saw one — Top-down and hierarchical in its articulate and evolve its business model. potential bust in California, where organization. Kaplan comments, “It’s amazing how few the quest for “Unicorns”—start-up — Driven by financial outcomes. organizations can clearly articulate their companies reaching a US$1 billion — Linear, sequential thinking. business model. Can yours? If you ask valuation—went onto the back foot. — Innovation primarily from within. any ten people in your organization how Investors began shifting their focus — Strategic planning largely an it creates, delivers, and captures value, from companies able to deliver fast extrapolation from the past. will the answers even be close?” And we growth at any cost to those with viable, — Risk intolerance. would add, crucially, would the answers “sustainable” business models. — Process inflexibility. suggest your business delivers value in a — Large number of employees. way that potentially answers 2030’s call? Take the case of Zirx, a San Francisco — Controls own assets. start-up that managed to raise US$36 — Strongly invested in the status quo. It’s an uncomfortable fact that business million with a business plan that relied models don’t last as long as they once on parking people’s cars for them and For guidance on how to build tomorrow’s did. In earlier times, business models making money on the side by selling business models and businesses, seldom changed over generations, with petrol and washing cars. By early 2016, try flipping all of these characteristics most people playing the game by well- Zirx was experiencing a profound shift in on their heads. Before we go further, defined market rules. But today very investor sentiment.18 “We had a model,” however, we should ask the basic different players are emerging, enabled CEO Sean Behr said, but admitted: question: what is a business model? by disruptive technology, and refusing “It just wasn’t realistic.” to play by the old rules. As a result, business model innovation is becoming the new strategic imperative. Breakthrough Business Models 14 Breaking Down Business Models Evolve

Looking at the bigger picture, it is The impact of digitalization Increasingly, successful business models clear that we face several decades will exhibit four types of exponential of experimentation, at all levels of our The characteristics spotlighted in potential, to a greater or lesser degree. economies. A clear signal that we Section 2 (Emergence, pages 15–29) Crucially, these will include: social are making progress will be when the will be decisive in terms of which contributions, direct and indirect (pages rate of failure (both of incumbents and business models are able to deliver 18–20); effective (or “lean”) use of all insurgents) goes off the scale. The long-term value—and which are not. forms of capital (pages 21–23); levels of mindsets, strategies, and business All of them will be powerfully shaped by integration, from fields, farms, fisheries models evolved in Waves 3 through 5 digitalization, which has already helped and factories through companies, will face an increasingly fierce natural launch an A-to-Z of new business industries and economies, right out to selection gradient. models, from Airbnb to Zipcar.19 the atmosphere and biosphere (pages 24–26); and contribution to shaping For those hoping for miracles, it is clear The next five chapters explore tomorrow’s increasingly closed-loop and that there is no ‘secret sauce’ business key characteristics of tomorrow’s circular value networks (pages 27–29). model waiting in the wings to deliver breakthrough business models. First sustainability development. Instead, and foremost, they will be Exponential in we must buckle down to the slower, terms of their capacity to scale both their harder task of better understanding how operations and their positive impacts. As business models evolve, operate and the penetration of new IT technologies, can be shaped. There is now a huge networks and platforms spreads, this number of business model options to exponential factor can only grow. pick from, but we need better informed ways of doing so.

Panel 2 The Business Model pit-stop

Like Formula 1 racing cars that barely As part of our research, we evolved This has translated into stores serving as pause for important fixes, fast-paced a simple “heatmap” looking at the a “lifeline” in disaster-affected areas, as businesses insist they have little time to activities of businesses and initiatives well as entering partnerships with local spare for the kind of tune-up required innovating in relevant areas, to quickly authorities to offer community visits to to work through the 17 SDGs, let alone gauge the extent to which a business seniors in the area.20 the 169 targets. Some businesses, model positively impacts upon four however, are describing to what degree broad nexuses, as well as the business This analysis suggests that the current they are already aligned with some, model characteristics we see as model’s strengths are in its social and many or all of the Goals. In some cases critical to breakthrough trajectories (i.e. integrated nature, which are delivering this is for PR purposes, in others the Exponential, Social, Lean, Integrated, against the “Habitat” and “Wellbeing” process is undertaken in a genuine and Circular). This approach was used nexuses relatively well. On the other spirit of gap analysis. across scores of businesses to identify hand, there is still a gap to close in the suitable case examples. degree to which the model embraces This is critical, not simply as a tick-box “Lean” and “Circular” elements that will exercise looking across the SDGs, One intriguing example is shown be required of companies to fully deliver but as a measure of how businesses below, for 7-Eleven in Japan (where on the SDGs and beyond. and their value creation models are the company has more stores than stretching their remits and looking anywhere else in the world). It has As we signal in our Conclusions, this beyond the obvious sectors they developed a healthy food delivery kind of analysis urgently needs what currently impact, to where there is subsidiary, 7-Meal Service, in response software engineers call a “mash-up”. opportunity to create value for multiple to the growing number of elderly and We need to converge work on the stakeholders across wider systems. disadvantaged groups unable to travel or SDGs and linked targets, on emergent easily access daily goods. At the same assessment methodologies like the time, the company has also begun to Future-Fit Business Benchmark,21 see its chain of over 18,000 franchise and on the sorts of market exponentials convenience stores across Japan as part covered in Chapters 2.1–2.5 (pages of the country’s social infrastructure. 15–29).

Heatmap of Breakthrough Potential 7-Eleven Diets Resources Habitats Wellbeing

High impact ExponentialSocial Social Social Social

Medium impact Lean Lean Lean Lean

Low impact Integrated Integrated Integrated Integrated

Circular Circular Circular Circular Breakthrough Business Models 15

Too often the Sustainability Industry Delivering the SDGs will require many 2.0 has met business where it is, choosing— parts of the business world to shift or being forced—to adopt Business- onto new market pathways directed Emergence as-Usual and Change-as-Usual towards exponential improvements approaches, rather than pushing over time. This, in turn, will require new towards breakthrough outcomes and ways of thinking, new mindsets. “The ultimate system change. So what can incremental mindset focuses on making be done to expose business top teams something better,” as Mark Bonchek of to what’s coming and help them adapt Shift Thinking recently explained on 2.1 accordingly? the Harvard Business Review website, “while the exponential mindset makes Breakthrough One way is to bring in different parts of something different. Incremental is Exponentials the outside world. Just as business was satisfied with 10%. Exponential is out once encouraged to engage and learn for 10X.” 22 From 10% to 10X from activist NGOs, and then social entrepreneurs and impact investors, there is now a growing push to expose Bending the line people from boardrooms and C-suites to the perspectives and activities of While developing this section, we new types of exponential innovators, helped a Japanese car company entrepreneurs and investors. test and evolve the latest round of its sustainability strategy. A striking feature Groups like Leaders’ Quest take of their strategy slide deck: all the lines in leaders from incumbent companies, for the graphs were straight, in some cases example major European automakers, charting data out into the 2050s. Our to California to meet insurgents like response: little in history goes in straight Uber. Or they take them into the slums lines—and the future is likely to bend of megacities, to see the very different the relevant trajectories in unexpected circumstances in which different forms directions. of breakthrough innovation are needed and can happen. Linear thinking, in short, is time-expired. It’s time to bend the lines. Sensing this, Sometimes bringing together these growing numbers of business leaders are different realities can result in a shower jetting across to Silicon Valley to fill up of sparks. Increasingly, incumbents their ambition tanks, even if they know and insurgents alike are recognizing that incumbents rarely become effective good reasons to partner with new and insurgents. Still, many hope that some Breakthrough business different collaborators. In some cases, of that exponential energy will rub off on this may lead to an incumbent investing them. models will be increasingly in or acquiring an insurgent, but at a exponential—in at least time when some insurgents have market One literally stellar set of market valuations ahead of the incumbents insurgents can be found in the renewable four dimensions: Social, they aim to disrupt, the outcome could energy sector. Here’s how Bloomberg equally turn out to be a David acquiring puts it: Lean, Integrated and a fading Goliath. Circular. Clean energy investment broke new Whichever way the game goes, it is clear records in 2015 and is now seeing twice that tomorrow’s business models must as much global funding as fossil fuels. generate new blends of social impact, One reason is that renewable energy becoming ever-leaner in their use of is becoming ever cheaper to produce. multiple forms of capital, integrating Recent solar and wind auctions in across every level of the global economy Mexico and Morocco ended with winning and biosphere, and helping push bids from companies that promised to towards a circular economy. produce electricity at the cheapest rate, from any source, anywhere in the world [...]. Government subsidies have helped wind and solar get a foothold in global power markets, but economies of scale are the true driver of falling prices. The cost of solar power has fallen to 1/150th of its level in the 1970s, while the total amount of installed solar has soared 115,000-fold. The reason solar-power generation will increasingly dominate: it’s a technology, not a fuel. 23 Breakthrough Business Models 16 Emergence Breakthrough Exponentials

In pursuit of exponential futures, we Around the world, innovators are now Achieving adoption, at scale visited The X Prize Foundation and doing just that, though tracking them Singularity University in California. down can be a challenge. Often, The inherent potential for technology Here’s how the X Prize team introduces radical new solutions start out on the to drive exponential change is clear. their challenge prize approach: edges of the system, struggling to gain The book Exponential Organizations traction. The rate of attrition and failure spotlights a range of potent forces XPRIZE is an innovation engine. tends to be high, with technologies now at work, among them exponential A facilitator of exponential change. and business models running through technologies (including artificial A catalyst for the benefit of humanity. many generations and variants as their intelligence, sensors, networks, robotics, We believe in the power of competition. originators struggle to break through. additive manufacturing, nanomaterials That it’s part of our DNA. Of humanity and synthetic biology), DIY innovators, itself. That tapping into that indomitable But as an old wave fades and a new crowdfunding, crowdsourcing and the spirit of competition brings about one builds, the threat to incumbent rising billion entrepreneurs enabled breakthroughs and solutions that once businesses becomes increasingly by the latest generation of Internet- seemed unimaginable. Impossible. clear. As a result, a growing number delivered technologies. of business leaders are viewing the We believe that you get what you impact of companies like Uber on the But technology and digitalization alone incentivize. And that without a target, you taxi industry, and Airbnb on the hotel are not enough to guarantee mainstream will miss it every time. Rather than throw industry, as a warning that no sector can adoption. A core discipline for the new money at a problem, we incentivize consider itself safe against the new types breed of innovators involves building the solution and challenge the world of market insurgent. platforms, rather than just products. to solve it. We believe that challenges The aim, according to Exponential must be audacious, but achievable, tied Organizations, is: to objective, measurable goals. And Plugging into the exponential understandable by all. mindset 1 To identify a pain point experienced by a large number of potential We believe that solutions can come from Old order businesses tend to have a consumers or users. anyone, anywhere, and that some of number of characteristics that make the greatest minds of our time remain them increasingly vulnerable. As 2 To develop a core value unit in any untapped, ready to be engaged by a entrepreneur and tech investor David social interaction between a producer world that is in desperate need of help. Rose put it: “Any company designed for and consumer. success in the 20th century is doomed Co-founder Peter Diamandis challenges to failure in the 21st.” Applying an 3 Design a way of facilitating that linear thinking as destructive, self- exponential mindset will be key. To get a interaction, developing a prototype limiting. “Unfortunately, most people sense of how this is best done, consider to test the proposition. think in terms of scarcity, and linear plugging into Singularity University. growth. They see limitations, rather than Here’s how they introduce themselves: 4 Determine how to build a network possibilities. They forget that the world’s around that interaction—turning users biggest problems are the world’s biggest Singularity University is a benefit into ambassadors for the platform. business opportunities. They see linear corporation that provides educational projections in a world where technology programs, innovative partnerships and Business models are key to exponential is exploding exponentially.” 24 a startup accelerator to help individuals, growth—as demonstrated by Google, businesses, institutions, investors, NGOs now part of Alphabet—whether these In other words exponential change can and governments understand cutting- potentially lead to more sustainable disrupt even exponential businesses. As edge technologies, and how to utilize outcomes or not. Relevant business Diamandis put it in the foreword to the these technologies to positively impact models include Franchising, Freemium, book Exponential Organizations, “Today billions of people. From Push to Pull, Multi-sided the only constant is change, and the rate Platforms and Open Source—in of change is increasing. Singularity University believes that addition to many of those spotlighted “leveraging the convergence of under our other headings in Chapters exponential technologies will set us 2.2–2.5 (pages 18–29). The future’s already here: on the path to solve our Global Grand Breakthrough Exponentials Challenges and shift from an era of Note: all such terms highlighted in scarcity to abundance.” There are 11 bold italic link back to Annex 1 (pages “You never change things by fighting global grand challenges—and they map 32–33), which lists around 80 different the existing reality,” the fabled designer fairly well across the SDGs, though one business models. and engineer, Buckminster Fuller, once outlier is Space. said. “To change something, build a new We now spotlight two contrasting model that makes the existing model It is no accident that Peter Diamandis examples, looking at different ways in obsolete.” was a co-founder of both The X Prize which an insurgent (Tesla) and a group Foundation and Singularity University, of incumbents (Nissan, Enel and nor that he wrote both the foreword and National Grid) are playing into the afterword for Exponential Organizations, exponential space. by his colleagues Salim Ismail, Michael Malone and Yuri van Geest. The book’s 12-point framework offers crucial input for any business wanting to turn one or more SDGs into profitable market opportunities. Breakthrough Business Models 17 Emergence Breakthrough Exponentials

Case 1 Case 2 Thinking big— Stretch partnerships deliver and betting big exponential outcomes Tesla Nissan + Enel + National Grid

Country Musk is an entrepreneur Countries While countries like China USA who thinks big—and bets Japan, Italy, UK respectively and Germany offer subsidies big. His investment in the to buy battery-powered cars, Status company’s Gigafactory in Status consumer anxiety over their For-profit Nevada is a case in point.25 For-profit multinationals limited range and higher Tesla’s mission, he says, is prices has slowed adoption. Founded to accelerate the world’s Founded Now Nissan and Enel are 2003 transition to sustainable 1933, 1962, 1990 respectively providing Enel’s “vehicle- energy. To achieve that goal, to-grid” software to drivers, Website he knows that Tesla must Websites allowing them to trade www.teslamotors.com produce electric vehicles in www.nissan-global.com electricity via the National sufficient volume to force www.enel.com Grid system. Purpose structural change in the www.nationalgrid.com automobile industry. If it works, the aim is to roll Tesla’s mission is to accelerate Purpose out the scheme commercially, the world’s transition to One potential road block: explains Ernesto Ciorra, sustainable energy. It aims with a planned production In a bid to mainstream electric Enel’s head of innovation to produce electric cars that rate of 500,000 cars a year in vehicle adoption, and at and sustainability. Dubbed deliver incredible power and the latter half of this decade, the same time, increase the “xStorage”, the energy uncompromising design, Tesla alone will require today’s viability of renewable energy storage unit developed by with the goal of making each entire worldwide production – a partnership was devised Nissan and Eaton Corp., a new generation increasingly of lithium ion batteries. So the that could potentially help Cleveland-based company, affordable. Gigafactory is a creature of boost Nissan’s electric car will be priced starting at necessity. sales, whilst helping the UK’s €4,000 (US$4,556). National Grid smooth out Business model In a twist on Crowdfunding, fluctuations in the renewable But for this to happen, Musk morphed the standard energy system. and at the right scale and Founder and CEO, Elon Musk, practice in the auto sector of speed, government action is operates all over the map, it taking “good faith” deposits needed. Nissan and Enel want often seems: in electric cars, from customers wanting Business model regulators to help encourage batteries, solar power, and to get the latest models as the shift away from diesel- and space. But the picture has got soon as they come off the To this end, Nissan and gas-driven cars. They argue a little simpler now that Musk assembly line.26 What Tesla National Grid formed a that there should be higher has engineered the acquisition did for their Model 3 launch new partnership with Enel, taxes on vehicles emitting of his solar energy company was unprecedented. By uniting Japan’s second- higher levels of carbon SolarCity by his electric the launch, it had already biggest carmaker with two dioxide. Once governments car company Tesla. The key secured over US$325 of Europe’s biggest utilities. adopt regulations to cut is that Musk can see big million in customer deposits Together they aim to enable pollution from the transport picture trends extending well for the Model 3, even drivers of Nissan Leaf battery- sector, a quarter of the into Wave 6. In some cases, though customers knew powered cars and e-NV200 world’s cars could be electric as with his interest in the it would not ship until late electric vans to sell excess by 2040, according to settlement of Mars, he may 2017. Unlike Kickstarter energy during periods of peak Bloomberg New Energy even be playing into Wave 7 pledges, however, the demand—turning automobiles Finance forecasts.27 and beyond. US$1,000 deposit that more into mobile power sources than 325,000 would-be competing with the likes of Tesla drivers put down is Tesla’s Powerwall battery. refundable. Breakthrough Business Models 18 Emergence

2.2 Tomorrow’s business models must Learning from how these people define pursue positive social impact to drive and deliver social value is now a key Social X real progress against the SDGs. True, step for business leaders. Danone’s most businesses are social, in that they relationship with the Grameen Bank 2030 demands employ and serve people. But leading in Bangladesh was an early example solutions for a world of businesses are now moving well beyond of a major company using a strategic this basic, existential position and partnership with a social enterprise— 8.5-going-on-10-billion adapting their business models to better coupled with a novel business model— align with their evolving sense of social to explore new opportunity spaces purpose. towards the base of the wealth pyramid.

Most business leaders accept that there Meanwhile, a growing number of will be a continuing need for regulators, businesses are embracing B Corporation enforcement agencies, activists and status, or—like Unilever with its much- the media to bear down on the most celebrated Sustainable Living Plan—are anti-social business activities. And exploring ways to certify at least some the push for greater transparency and of their subsidiaries. This involves accountability through supply chains rechartering a business around the triple can only grow. Tools like social impact bottom line, something Novo Nordisk assessments and audits have long been pioneered back in 2000. used to work out the balance between the upsides and downsides of business Leading businesses use materiality activities, and should now be applied analysis to identify priority threats and more widely. opportunities, coupled with social impact evaluation—for example, quantifying But our focus here is on the design social return on investment (SROI). But, and operation of business models, to truly move the needle on the SDGs, and delivering on the SDGs requires business leaders must embrace shared considerably more than risk mitigation value in its fullest sense, embedding and socially-oriented programs and it into their next generation business initiatives. models and helping drive the necessary system-level changes. Unhelpfully, the terminology remains opaque and confusing. You know you’re in a relevant conversation when The future’s already here: you hear terms like social capital, Social X Breakthrough business social return on investment (or SROI), social impact, social enterprise, social Welcome to the New Math, Mr Bezos. models will be social, entrepreneurs and intrapreneurs, social That was the title of a provocative article innovation, double bottom line, shared by editor-in-chief Adi Ignatius on why the delivering both financial value, base of the pyramid, and impact Harvard Business Review (HBR) changed and extra-financial value investment. For many people, but not how it compiles its annual calculation of all, the social agenda also embraces the world’s 100 best-performing CEOs.28 through positive impacts ethical, environmental and governance In 2015, for the first time, it factored in considerations. environmental, social and governance for people—in the present (ESG) performance. In the process, it and in the future. Luckily, there are those who are already heralded a profound change in the way out there, driving real-world change— leaders are assessed and rewarded. and most are happy to talk about how this is best done. Since the late 1990s, Even weighted at 20%, Ignatius noted, we have seen growing interest in a “adding ESG to the equation changed new breed (or newly celebrated breed) absolutely everything—it upended the of social change agents, embracing rankings more than we anticipated. social entrepreneurs (who run their own Amazon CEO Jeff Bezos fell from No. organizations and businesses) and 1 to No. 87, for example, and Reed social intrapreneurs (driving change Hastings of Netflix fell off altogether.” within mainstream organizations). Storming in at #1 was Lars Rebien Impact investors are also bringing new Sørensen, CEO of the Danish healthcare professionalism and financial rigor to company Novo Nordisk.29 HBR’s cover the field. reflected the fact that the winner was something of an unknown. Breakthrough Business Models 19 Emergence Social X

So, it seems, it’s no longer good When cities are planned, managed and But how does this look when viewed enough simply to be an exponential governed well, they can deliver prosperity with an exponential lens? We feature, entrepreneur—you have to be a socially and wellbeing. “But when this isn’t the in Case 3 (page 20), a new non-profit responsible, exponential entrepreneur. case, inequalities, working patterns, initiative in India being built by Infosys Novo Nordisk doesn’t use the Social lifestyles, and cultural norms that cities co-founder Nandan Nilekani and his wife X language, but many aspects of its foster can magnify vulnerabilities to Rohini, internationally renowned social story link to social impact. And the most diabetes and other chronic conditions.” entrepreneurs. They describe EkStep striking illustration is the company’s as “a utility, an enabler. Our layered, push to undermine its own future So health resources—including modular platform allows for the co- markets. investments of people, intellectual creation of solutions that are non-linear, capital and financing coming from Novo agile and scalable. It amplifies the impact Nordisk—must be applied in sync with of the current educational ecosystem Solving exponential problems urban planners and city mayors. Pilot through partner networking.” studies are under way in Houston, As the world’s biggest producer of Mexico City, Copenhagen, Shanghai, Business models, as mentioned in insulin, used to treat diabetes, Novo and Tianjin. Chapter 1.2 (pages 12–14), underpin Nordisk is potentially sitting on a the activities of organizations in many goldmine. Diabetes is a public health Asked why his company is investing in different sectors, including the private, emergency in slow motion, says this way, Sørensen replies: “With our public and citizen sectors. And history Sørensen.30 “It may lack the immediacy knowledge and position in the market, makes it clear that many activities now of communicable diseases such as how can we not do something to help? taken for granted in the developed world malaria, tuberculosis, and HIV, but it And if one day we wind up eliminating were first evolved by not-for-profits. In is a bigger killer globally than all three diabetes, thereby destroying a big part effect, they seed and nurture the market combined. The International Diabetes of our business, we can be proud.” opportunity spaces that others can then Federation (IDF) estimates that 415 Stand back, however, and it’s clear that address with for-profit business models. million people, or about one in every 11, Novo Nordisk is innovating its current are living with the condition; in 2015, 28 business model by solving tomorrow’s There is also a host of exponential million more adults had it than in 2014. challenges—and by expressing its core technologies, including solar power Without concerted action, the number purpose, to improve the health and and drones, which is giving social of diabetes cases could grow by 50% in welfare of people. development in emerging economies the next 25 years, meaning there could a new impetus. Off-Grid Electric be 642 million people living with the The Novo Nordisk example also clearly and Zipline are two examples in point condition.” demonstrates how an exponential operating in sub-Saharan Africa, featured mindset involves taking into account respectively in Cases 4 and 5 (page 20). The exponentially growing economic the potential for breakdown as well as burden could crush health systems. breakthrough. Most people operate So, Sørensen insists, “we need to within such short-term time horizons that Taking Social X mainstream, at scale look beyond the current horizon of emerging exponentials—good, bad or those who already have diabetes and ugly—are pretty much invisible to them. There are many initiatives in the get a firmer grip on the even greater HBR’s celebration of Novo Nordisk was increasingly vibrant social enterprise field, proportion of the population—nearly very much related to the company’s ranging from Ashoka to foundations like 2 billion people—who are at risk of efforts to help decision-makers in other Gates, Omidyar, Schwab and Skoll. developing the condition.” Rather than sectors spot exponentials that could just boosting production of insulin, Novo collapse entire national health care Business schools are also beginning to Nordisk campaigns to alert the world systems, or their equivalents in other pay more attention. But for our money to the threat of “urban diabetes”. Cities sectors. the best current bet in the business are key, given that this is “where half the world is B Lab—the organization world’s population, and two-thirds of behind the rapidly scaling B Corporation people with diabetes, now live.” Disruption at the base of the pyramid movement—featured in Case 6 (page 20). The movement, which challenges When considering social outcomes, the corporate monocultures driven by particularly in emerging and less a single bottom line, takes a leaf from developed parts of the world, Base Novo Nordisk’s book by insisting that of the Pyramid and related business all B Corps re-charter themselves around models come to mind. These have been the triple bottom line agenda. pioneered for decades by the likes of Muhammad Yunus and other pioneering social entrepreneurs. Breakthrough Business Models 20 Emergence Social X

Case 3 Case 4 Case 5 Case 6 Education digitalized Solar distribution Healthcare via Mainstreaming impact off-grid drones business models Ekstep Off-Grid Electric Zipline B Lab

Country Country Country Country India USA, operating in Tanzania USA, operating in Rwanda USA

Status Status Status Status Non-profit social enterprise For-profit social enterprise For-profit Non-profit social enterprise

Founded Founded Founded Founded 2015 2011 2014 2007

Website Website Website Website www.ekstep.in www.offgrid-electric.com www.flyzipline.com www.bcorporation.net

Purpose Purpose Purpose Purpose Founded by Nandan Nilekani The vision is to make clean, Zipline aims to make Through its certification (co-founder of Infosys) and his affordable energy accessible healthcare accessible to framework, B Lab aims to get wife, Rohini Nilekani, Ekstep to everyone. The company those who lack access. all companies to compete not aims to provide equitable has created a distributed The company promised the only to be the best in the world, access to numeracy and off-grid solar model that world’s first commercial drone but the best for the world, and literacy learning opportunities is affordable and backed delivery service in 2016, thereby create shared and for primary school children in by next-generation lithium deploying healthcare across durable prosperity for society. India. batteries, hyper-efficient Rwanda and potentially Iconic purpose-led companies appliances and intelligent overcoming the country’s poor like Patagonia, Ben & Jerry’s Business model electronics. In countries like transport infrastructure. and Natura have joined over Ekstep is creating a scalable Tanzania, where the poor 1,700 B Corps across 50 education marketplace pay high prices for charcoal, Business model countries, along with a new utilizing an Open-Source, a health- (and sometimes Zipline employs a low-tech breed of start-ups including Multi-Sided Platform life-) threatening fuel, Off-Grid approach, using materials Kickstarter, Etsy and connecting children, teachers Electric is creating far-reaching like rubber bands for ejection Sungevity. Bigger companies and service providers to impact in and beyond the springs, and wax paper for are now also showing interest, learning content from diverse energy access and health a parachute, cutting cost among them Unilever and content creators on mobile fields. Founded by a team and complexity, as well Danone. devices, both online and of serial entrepreneurs and as increasing the chances offline. Apart from its role as incubated at the Skoll Centre of successful working in Business model a Layer Player, EkStep also for Social Entrepreneurship rugged and remote terrain. B Lab’s own business model Leverages Data on learner in Oxford, the company Its business model embraces is mainly based on certification actions, gaps, and content raised US$70 million in 2015 Building a Marketplace, fees. But more importantly, they consumption. and is already reaching over Increased Functionality, are creating broader system 10,000 new households each Layer Player, Lean value by helping B Corps to month.31 Production and No Frills. measure and communicate In its first phase, Zipline is positive impact, introducing Business model working with the Rwandan new rigor to the process. Adopting a host of business government to deliver blood By certifying as B Corps, models, including Base of on a “just in time” model, companies can now prove the Pyramid, Building a reducing delivery times that they are “measuring what Marketplace, Cross-Selling from hours or days in bad matters” by answering two and Localization, Off-Grid weather, to under 40 minutes. key questions: 1) how you Electric helps customers with Zipline is also working with run your business; and 2) no formal credit to access others, including the UPS what your business does to energy through low prices on Foundation, to expand its generate revenue designed a Pay Per Use basis, whilst offerings into vaccine delivery to create a positive impact. B providing access to other this year. It has attracted Lab terms the latter an Impact Microfinance solutions in funding from the likes of Business Model (IBM). The B order to purchase energy- Sequoia Partners and Impact Assessment measures efficient appliances. Google Ventures, and is a company’s “IBM” on five looking to expand its offerings main dimensions: materiality, both beyond healthcare, and durability, differentiation, beyond East Africa.32 outcome focus, and verifiability. Over time, perhaps it should be opened up to include breakthrough outcome metrics under the exponential, social, lean, integrated and circular headings? Breakthrough Business Models 21 Emergence

2.3 Lean innovation and leaner business Frugal innovation, which is closely models will be central in delivering related, is defined as doing more—and Lean X against the SDGs. In business, the better—with less. It is described as “a word “lean” links to several concepts— breakthrough growth strategy enabling We must make better use including the lean start-up movement, companies to develop high-quality of all forms of capital lean manufacturing, lean services, products and create more business frugal innovation and more. Tomorrow’s and social value, while minimizing the business models must build on this use of vital resources such as energy, momentum, using resources effectively, capital and time. Once the preserve of creating no waste and maximizing value companies in developing markets, frugal across entire value networks. innovation is now being adopted by global enterprises, large and small.” 34 Such business models must optimize value creation across all forms of Significantly, theFrugal Innovation Hub capital, from conventional forms like notes that “with an estimated trillion- physical and financial capital, through dollar global market for sustainable newly understood forms like human products and huge cost savings to be and intellectual capital, to tomorrow’s gained, frugal innovation is revolutionizing understanding of social, cultural and business across industries and reshaping natural capital. They will need to management thinking worldwide. generate market-relevant value without As such, frugal innovation is the key further depleting extra-financial capital. to success in a business landscape increasingly defined by mega-trends Lean thinking tracks back to Toyota such as collaborative consumption, and its drive to squeeze waste out of its the circular economy, and the maker operations. The so-called Toyota Way movement.” 35 was developed between 1948 and 1975, focusing on seven forms of muda, or The Lean Startup movement and waste. The ultimate goal: zero waste. process sees every startup as an experiment that attempts to answer Yet champions of the lean business a question. The question is not, “Can agenda stress that it is neither a tactic this product be built?” Instead, the nor just about cost reduction, but a more questions are “Should this product be fundamental—and innovative—way for built?” and “Can we build a sustainable individuals and organizations to think and business around this set of products and act. Organizations in all industries and in services?” We suggest that this type of the services sector, including healthcare, questioning can help not just startups, Breakthrough business are using lean principles, as are parts of but any business wishing to deliver on models will be lean, government. the SDGs. optimizing the use of all Lean innovation includes techniques The biggest opportunity area for lean such as identifying the “minimal viable thinking, design, engineering and forms of capital, from product”, developing an early version management is in the coming race rapidly and testing it with customers, towards a low-carbon economy. As physical and financial, and then repeating the process until the pressure builds to drive carbon out through human and the product is competitive—or, if it of every aspect of our economies, we isn’t, pivoting to explore a different will see growing interest in the offerings intellectual, to social approach.33 of clean energy insurgents and in and natural. the carbon productivity approach of companies like Covestro (see page 22). Breakthrough Business Models 22 Emergence Lean X

The future’s already here: In both cases, there are energy benefits. In China, where the giant country’s future Lean X Covestro estimates, for example, that moves in business will have enormous during the life of polyurethane insulation impact globally, it is interesting to see Current demographic data suggest panels, they save 70 times as much companies like Alibaba beginning to that we are headed towards—and energy as they take to make—a 70-fold play into this opportunity space by potentially beyond—10 billion people. carbon productivity boost. Repurposing Excess Capacity. We Meanwhile, greenhouse emissions are feature this example in Case 8 (page 23). pushing us towards—and very likely Covestro has also been developing beyond—the 2 degrees Celsius limit that Base of the Pyramid applications of its But the need for value creation also scientists tell us defines the upper limit of technologies through its Project Sunrise extends to human capital. DoctHERs, climate stability. So a central, existential initiative. Among other things, it has been a new healthcare digital platform set challenge involves radically improving the developing affordable insulation products up by two female doctors in Pakistan, carbon productivity of our economies, for use in applications like cool chains exemplifies this. Featured in Case 9 businesses, products and services. (cutting food waste and enhancing (page 23), DoctHERs is addressing two farmer incomes) and low-cost housing. critical issues in Pakistan: the gender The notion of carbon productivity The aim: sustainable shared value barriers affecting trained female doctors surfaced back in 2008 with a key outcomes.40 unable to secure employment, and McKinsey study,36 though there have communities at the base of the wealth been parallel threads in the life cycle Some call this Jugaad, a Hindi word pyramid unable to access quality health analysis, cradle-to-cradle and circular suggesting “a hack or fix,” but which has care. economy worlds. Let’s zero in on two come to mean ways of finding intelligent, organizations that have embraced the low-cost solutions to any problem. carbon productivity challenge. The approach is deep-rooted in India, A new wave of lean business models but also widespread in other emerging Firstly Interface, the carpet company, economies. Brazilians say gambiarra, The rise of Total Quality Management has long worked to boost its resource the Chinese say zizhu chuangxin and (TQM) and Lean Production models has efficiency.37 It notes, “Our environmental Kenyans say jua kali. In English, we had a huge impact in terms of squeezing footprint is one of the more important say “frugal” or “bottom-up”. As global out waste, or what the Japanese call metrics we use to track progress warming continues, it is clear that muda, over the last several decades. towards our Mission Zero goals.” As to Jugaad—and linked disciplines—will be Now new models are in the spotlight, where the spotlight shines brightest, needed right across the temperature among them Fractional Ownership, “Because Interface has the greatest spectrum. Leasing, Modularity, No Frills and influence on the impacts through the Product as a Service—models Production Stage Carbon Footprint used by incumbents and insurgents (cradle-to-gate), this is where we focus From eco-efficiency to value creation alike, including Philips (page 29) and most of our activities. The average Fairphone. At the more radical end product carbon footprint of our carpet Eco-efficiency, how a business could of the spectrum, we see Produce on has been reduced by 31% since 2008.” save or make money through better Demand, Physical to Virtual and management of its energy and resource Sufficiency Models. Clearly, Circular Interface aims “to become a carbon flows, is but one early dimension in models (see pages 27–29) play into this neutral company by measuring, reducing which the Lean agenda has evolved. newly developing space, too. and offsetting our carbon emissions. Now new business models are being In addition, we implemented employee created to apply eco-efficiency at scale. One interesting model that has emerged programs to help address their emissions Take the example of Kaer (pronounced is Differential Pricing, employed by and we sell carbon neutral products ‘Care’) in Singapore, featured in Case GRIT, which we feature in Case 10 through our Cool Carpet program.” 7 (page 23), which has transformed air- (page 23). conditioning systems from a product into Interface’s Mission Zero has now a service. morphed into a new phase, Climate Take Back.38 Taking back our climate New versions of the Lean agenda is possible, they say, if we make four apply efficiency principles to all forms big changes: (1) only take what can be of capital used by a business. Clearly, replaced; (2) see carbon as a resource; however, there are potential tensions (3) restore nature’s proven ability to cool; to be managed across the different and (4) revolutionize our industries. dimensions of value creation. Here’s how Tony Greenham put it as director of Another company embracing carbon economy, enterprise and manufacturing productivity is Covestro, the former at the UK Royal Society of Arts (RSA): Bayer MaterialScience.39 It has two “Whilst lean design is good overall,” he main product lines: polyurethanes and told us, “applying lean to processes with polycarbonates. The first is used in the sole focus on efficiency (e.g. just-in- applications like building insulation, the time supply chain management, supplier second in car components. streamlining, eliminating redundancy and so on) runs counter to economic system resilience.” Breakthrough Business Models 23 Emergence Lean X

Case 7 Case 8 Case 9 Case 10 Air-conditioning Reverse logistics New resourcing for One technology, two products, as a service in China rural healthcare two markets

Kaer Alibaba Group DoctHERs GRIT

Country Country Country Country Singapore, operating China Pakistan USA across Asia Status Status Status Status For-profit For-profit social enterprise Non-profit social enterprise For-profit Founded Founded Founded Founded 1999 2014 2007 1993 Website Website Website Website www.alibabagroup.com/en www.docthers.com www.gogrit.us www.kaer.com Purpose Purpose Purpose Purpose Alibaba’s new consumer To connect female doctors GRIT’s purpose is to use The company designs, builds e-commerce business, to underserved patients in technology to improve the lives and operates air-conditioning Taobao, is hoping to reach real time, using the latest of wheelchair users in both systems for commercial consumers from the lower technology. developing and developed and industrial buildings on income demographic in countries, rural and urban behalf of customers, offering rural parts of China who Business model terrains. reliable cool air, coupled face limited choices, high DoctHERs operates a with energy efficiencies and prices and poor quality—not Multi-Sided Platform Business model cost savings to customers. surprising given the dispersed connecting female doctors Starting out as an MIT This is important, given that population and poor logistical with patients at the Base school project to create a in South East Asia, where infrastructure in these areas. of the Pyramid. It converts wheelchair that can be used air conditioning is the norm existing community spaces in developing countries, the within many cities, buildings Business model into walk-in clinics where GRIT team utilized frugal are responsible for the bulk of Alibaba has invested 10 patients are first assessed by innovation principles to work many countries’ total energy billion yuan (US$1.5 million) nurses or community health from the ground up. The result: consumption. in logistics, hardware workers employed a US$250 wheelchair with a and training to push its by DoctHERs. unique lever drivetrain that Business model e-commerce model into makes it faster than regular Building owners buy chilled 100,000 villages, setting up As part of a shift from wheelchairs, and offers off-road water from Kaer at a fixed rural service centers where Physical to Virtual, performance well beyond other rate on a Pay Per Use basis. it provides computers and patients are then remotely mobility aids. Utilizing a Product as a monitors, training villagers to diagnosed by doctors using Service model, Kaer then serve as its representatives a telemedicine system, Designed using No Frills shifts the responsibility of in the centers, and ensure alongside instruments principles, GRIT utilizes steel reducing energy consumption timely delivery of purchases. operated by the nurses. and bicycle parts that can away from building operators Traditional business models Fees are kept as low as be found in any rural village, and owners by taking over employed by Alibaba include US$1 per consultation, enabling the wheelchair to and optimizing a building’s air E-Commerce, Layer Player enabled by a No Frills model. be easily repaired anywhere. conditioning system. It takes and Long Tail. As a Solution Provider, It is within the price range of on all future costs related to DoctHERs Co-locates humanitarian organizations, to operations and maintenance, Eventually, and this is the various services within each which GRIT sells the Leveraged including water, electricity, and key to the Lean dimension, clinic, including a mini- Freedom Chair (LFC) in bulk repair bills. In the process, Alibaba has ambitions pharmacy, a family planning domestically. Its experience Kaer cuts costs to building to Repurpose Excess lab, a test collection point, with the LFC was then Reverse owners, while potentially Capacity by using this same and tertiary care referral Engineered—and modified increasing their profit by infrastructure and digital services.43 into a western version, the GRIT lowering the rate of energy platform to sell vegetables Freedom Chair. This now sells consumption using a remotely and fruits to the cities, whilst in the USA for US$3,295, less operated monitoring and increasing incomes for than half the price of competing verification system.41 farmers. It claims that this products.44 will help in attracting more of China’s growing middle class to move back into villages.42 Breakthrough Business Models 24 Emergence

2.4 Experimentation often means If we could go back to the 81% of CEO’s disintegration and reintegration. polled and ask if they see their business Integrated X Meanwhile, plain integration is key to as deeply and existentially connected to successful breakthrough innovation. society, much less to nature, we would It’s time to connect We see aspects of the integration surely see a drop in the percentage tomorrow’s dots concept in many of the cases we have that claims to have already embedded spotlighted to date. sustainability. And yet to deliver on the SDGs—and more urgently, to halt any If you are an incumbent business, activities that undermine them—business integration tends to mean consolidation, will need to achieve a level of integration or pulling legacy activities into new that creates social and environmental configurations. So, for example, a benefits by the very act of doing holding group might restructure a set of business. businesses that are essentially Wave 5 in orientation, to drive new efficiencies. This This will entail integrating an under- could be a real improvement in terms standing of social and environmental of their performance against traditional risks and opportunities across the cost saving metrics, for example, but is business (for example, across multiple unlikely to align the overall business with departments), supply chains (upstream, Wave 6 realities, let alone the SDGs. downstream), sectors (private, public, citizens), and clarifying how the It’s not clear that most business leaders company’s core offer is aligned with yet understand this. Surveys of CEOs solutions to the needs of 2030 and and other corporate leaders have beyond. sometimes shown a surprisingly weak grip on what integrating sustainability An important pathway towards considerations into a business implies. integration involves integrated reporting, with its focus on the conciseness, In a survey published in 2010, strategic relevance and future orientation Accenture and the UN Global of sustainability-related information. Compact found that of 766 CEOs polled But the integration challenge also worldwide, 93% thought sustainability requires business top teams to think important to their company’s future wider, deeper, longer and differently. success—and fully 81% (compared to 50% in 2009) reported that they had Even the best of today’s “integrated already embedded it.45 reports” are mainly a compilation of data and narrative pertaining to forms of Breakthrough business Many of these CEOs probably meant capital (e.g. physical, financial, human, models will be , that they had sustainability programs or intellectual, social and natural), rather integrated even goals and strategies, that they had than an indication of how the business managing financial and engaged external stakeholders and that contributes to an intelligent global effort they had produced non-financial reports. to track and improve on impacts from extra-financial value But integration means something fields, farms and fisheries, up through creation across economic, much more fundamental in the present supply chains and companies, and context. The real test would have then out to the biosphere, oceans and social and environmental been the proportion that had adapted atmosphere. their business models to improve the systems. financial and non-financial impacts of In other words reporting doesn’t yet the company, and in tandem adopted a illustrate effectively how the company’s more integrated mindset. business model is delivering on positive impacts for these and other systems. As noted in SustainAbility’s 2015 Such an ambitious outcome—involving report, Sustainability Incorporated, both the mindset shift and ability to quoting Jib Ellison, founder and CEO of execute and deliver on it—is still beyond Blu Skye, and Ram Nidumolu, former the reach of many individual companies. COO of Blu Skye, “This new mindset But it is a key part of what the world of would see business, civil society and 2030 requires from us. nature as deeply and existentially interconnected, acknowledging the limitations of what can be formally analyzed or valued in the marketplace. We call this the integrated mindset.” 46 Breakthrough Business Models 25 Emergence Integrated X

The future’s already here: Less in the public eye, but potentially just Combining new and old technologies Integrated X as important, has been GE’s evolution as a software engineering and Big Data The latest era of globalization has seen How can an incumbent company or company, targeting the burgeoning a race to integrate supply chains and industry become an insurgent, a “radical Internet of Things sector. As Immelt value networks around the world as a incumbent”? One example featured in told McKinsey, “Industrial companies way of optimizing logistics and cutting many business school case studies is are in the information business whether costs. At the same time, both new and General Electric (GE) one of a relatively they want to be or not. This is going to old technologies have inspired novel small group of companies that have happen in the industrial space.” 48 business models that are working reinvented themselves over time. towards new forms of integration.

Here’s how Fast Company summed up System-level integration Largely associated with the finance early reactions to GE’s Ecomagination sector, Blockchain technology is already initiative when it was launched over a There have been many attempts to beginning to inspire new business decade ago: better integrate the sustainability agenda, models in supply chain management with the SDGs being a recent case in across manufacturing and consumer In 2005, when GE’s CEO Jeff Immelt point. Much of the effort, however, has products. One start-up in this space is announced that the industrial giant been directed at integrating activity—as London-based Provenance, featured in was putting significant resources into in accounting and reporting—across Case 13 (page 26), whose services make a program called Ecomagination, the various forms of capital created or it easier to understand where and how designed to emphasize energy efficiency used by business. This is fine, as far our food is made. and ecologically friendly products, you as it goes, but there is a much larger wouldn’t have been wrong in scoffing. integration challenge staring us in the In contrast, LaborVoices, uses voice GE was considered one of the most face. recording technology to help factory notorious polluters in American corporate employees around the world to report history, infamous for ruining large There is generally little or no link between on working conditions via their mobile sections of the Hudson River with run-off the data and impacts that individual phones, connecting different parts of from its factories. And a decade ago, companies report and that which is the value chain to ensure unheard (or revamping an enormous business in the counted, analyzed and reported by ignored) voices—and concerns—are quest to produce less carbon wasn’t a their competitors, customers, other heard. Featured in Case 14 (page 26), mainstream proposition.47 industries and the overall economy. If LaborVoices offers radical new solutions pan-capital thinking is horizontal, then in relation to labor and human rights But GE and Immelt proved the skeptics we also need vertical integration—pulling challenges. wrong. As Fast Company commented, together every level of business activity “It has become the lynch pin of a to assess progress against the SDGs, for remarkably successful reinvention of example, and the planetary boundaries GE, the foundation of the company’s frameworks developed by the likes of the future, and the vanguard of the Stockholm Resilience Centre. global movement towards corporate environmentalism.” It has stuttered a bit with a change of CEO, but GRI’s (Global Reporting Ecomagination—which at the time of Initiative’s) Technology Consortium, writing had generated over US$200 featured in Case 11 (page 26), was a billion in sales, while also serving as bold attempt to close some of these the spur for GE cutting its water usage gaps.49 The involvement of incumbents and greenhouse gas emissions by 42% (like HP, IBM and SAP) and insurgents and 31%—isn’t just a case of great (like Quid) provides an interesting slogans and radical new ideas. It has example of a standard-setting body also significantly invested—to the tune working to create a new market, a of US$5 billion by 2010—in clean tech benign sea level rise floating new types R&D. And early in 2014, GE announced of business models. new targets: by 2020 it promised to invest another US$10 billion in clean Given the interconnectedness of technology R&D, and to reduce its own the SDGs, we need business—and greenhouse gas emissions and water partnership—models that acknowledge usage by 20%. and work across diverse system dimensions. Consider the case of But it’s easy to overlook a critical Grow Asia, featured in Case 12 (page ingredient: integration. Many GE 26), a multi-stakeholder partnership initiatives had failed without buy-in from platform established by the World mid-level managers and their teams. Economic Forum, in collaboration with So processes were developed that put the Association of Southeast Asian Ecomagination principles at the forefront Nations (ASEAN) Secretariat. Its of product development. Managers now unique model, focused on agriculture give equal priority to Ecomagination- development, delivers a combination of pioneered criteria, such as environmental food security, environmental sustainability impact and resource efficiency. and economic opportunity, a high potential case of system-level integration in action. Breakthrough Business Models 26 Emergence Integrated X

Case 11 Case 12 Case 13 Case 14 Leveraging data at the Linking better livelihoods and Transparency behind Giving the global workforce system-level environmental sustainability the plate a voice

GRI Technology Grow Asia Provenance LaborVoices Consortium Country Country Country Country The Netherlands Singapore United Kingdom USA

Status Status Status Status Non-profit international Non-profit international For-profit social enterprise For-profit company organization organization Founded Founded Founded Founded 2013 2010 GRI 1997 2015 Consortium 2015 Website Website Website www.provenance.org www.laborvoices.com Website www.growasia.org www.globalreporting.org Purpose Purpose Purpose In these days of exponentially LaborVoices helps factory Purpose Around half of South East radiating supply chains, it employees around the world Having mainstreamed the Asia’s 600 million people has become much harder to easily and anonymously process of sustainability live in rural areas, and the to know where what we report on working conditions reporting in organizations region has the potential to consume comes from—and inside their factories using using its evolving standards, become a major part of the how it has been produced. their mobile phones. This GRI formed the Consortium solution to the global food Provenance enables brands minimizes the risk of workers to help businesses go security challenge. Grow and individuals to take steps being coached on how to beyond traditional reporting. Asia convenes, facilitates, toward greater transparency answer audit checks, in the The brief of the early-stage and helps scale partnerships by tracing the origins and context of threats or fears Consortium is to develop involving smallholders, histories of products. that they might be fired. They new solutions and uses for governments, companies and can respond more truthfully, sustainability data both within others to boost smallholder Business model while providing companies individual companies, and farmers’ productivity whilst Provenance offers full with a more cost-effective, across industries, sectors and ensuring environmental transparency in food and reliable and personalized economies. sustainability. product supply chains using way of auditing labor issues Blockchain technology, which across their supply chains. Business model Business model uses a global Peer-to-Peer Recordings with information GRI operates as an As an Orchestrator, network to provide an Open about local services, from Orchestrator, using an Grow Asia has already Source platform that can healthcare to trade unions, Open Business model— reached nearly half a million deliver neutrality, reliability are sent back to workers to bringing together partners smallholder farmers, and and security.51 Leveraging support them. across the ecosystem—to aims to bring this number to Customer Data, the Leverage Data and Build a 10 million by 2020. A large business model is based on Business model New Marketplace for novel part of its remit is to help Subscriptions from users. As a way of Leveraging applications and solutions. farmers and other partners The benefit for them is that the Data, polling responses are Potential business models for utilize business models process can give a product anonymous, aggregated and GRI as this builds out include such as Direct Marketing, a form of digital passport to vetted, and presented back to Affiliation and Licensing, Digitization, Direct Selling, authenticate key information, subscribing companies via an while businesses that are part Inclusive Sourcing and and help end fake claims and online dashboard. Companies of the consortium could be Micro-Finance. These are counterfeiting. pay a Subscription to get enabled to innovate their own aimed at increasing farmers’ real-time visibility of their business models. productivity, profitability, and supply chains, along with environmental sustainability a case management and by 20%.50 escalation process managed by LaborVoices, so they can deal speedily with urgent issues like child labor or fire safety.52 Breakthrough Business Models 27 Emergence

2.5 All businesses must strive to become The financial side of the business case completely circular, designed to sustain is increasingly compelling.59 McKinsey Circular X products, components and material estimates that shifting towards circularity inputs and outputs at their highest utility could add US$1 trillion to the global Breakthrough solutions and value at all times. Crucially, the economy by 2025, creating 100,000 new deliver cradle to cradle circular economy concept distinguishes jobs within five years. Under theWaste between technical and biological & Resources Action Programme’s value cycles. In both domains, the emerging Circular Economy 2020 Vision, the discipline of biomimicry will be vital, European Union could benefit from an ensuring business neither creates waste, improved trade balance of £90 billion nor undermines essential material and (US$120 billion) and the creation of nutrient cycles, or wider ecological and 160,000 jobs. social systems. Among key initiatives are the Circular The push for circular business models Economy 100, launched by the Ellen has been under-way for decades. The MacArthur Foundation, and Project year 2016 marks the 50th anniversary MainStream, combining the forces of of Kenneth Boulding’s vision of a future the World Economic Forum, the Ellen “spaceman economy” on a “spaceship MacArthur Foundation, and McKinsey Earth”.53 He concluded, “Man must & Company. This is led by the CEOs find his place in a cyclical ecological of Averda, BT, Tarkett, Royal DSM, system which is capable of continuous Ecolab, Indorama Ventures, Philips, reproduction of material form.” Boulding SUEZ and Veolia. The focus is on died in 1993, but how would he rate our systemic stalemates in global material progress today? flows that are too big or too complex for an individual business, city or As James Greyson of the Blindspot government to overcome alone, and on think-tank notes, “A global environmental enablers of the circular economy such as movement of millions of people has digital technologies. undertaken millions of initiatives every year for decades. The circular economy The growing scale of Boulding’s cowboy vision has been reinvented and economy is captured in the Ellen relaunched with new language roughly MacArthur Foundation’s recent study every decade since the 1960s. There of plastics in the ocean.60 Most plastic have been multitudes of conferences, packaging is used only once; 95% of hefty reports and case studies of circular the value of plastic packaging material, resource flows. All that’s missing is any worth US$80 –120 billion annually, is Breakthrough business actual circular economy.” 54 lost. Such materials generate negative externalities valued at US$40 billion. And models will be circular, When Boulding first talked about the business-as-usual scenario suggests sustaining inputs and circularity, annual global materials that by 2050 our oceans will contain consumption was around 20 billion more plastics than fish (by weight), with outputs at their highest tonnes.55 Today it’s around 80Gt 56— the plastics industry consuming 20% of and as little as 6% of this gets recycled oil production, and 15% of the annual value in both technical into circular flows.57 “The reckless, carbon budget. and biological cycles. exploitative and violent behaviours characteristic of Boulding’s ‘cowboy Clearly, along with an opportunity to economy’ remain pervasive,” Greyson think Lean for better use of resources, concludes. there’s an exponential task ahead to be completely Circular if we are to close But, as a meme, the circular economy such loops.61 Cities will play a key role, has gained huge traction. The idea is that as illustrated by Seoul Metropolitan the economy should be restorative and Government and its ‘Sharing City’ regenerative by design. And it assumes initiative (page 29). And a key discipline “a continuous positive development over time will be biomimicry, which uses cycle that preserves and enhances lessons learned about how to design natural capital, optimizes resource yields, materials, processes, products and and minimizes system risks by managing habitats on the basis of the solutions finite stocks and renewable flows.” 58 nature has evolved in the face of similar challenges over the space of 3.8 billion years.

Breakthrough Business Models 28 Emergence Circular X

The future’s already here: As Thomas Rau recalls: “I told Philips, And there are novel ways of closing Circular X ‘Listen, I need so many hours of light in the loop emerging, thanks in part to my premises every year. If you think you the creativity spurred by all five of the Most civilizations have had a circular need a lamp, or electricity, or whatever— big themes covered—Exponential, element to their economies, even if most that’s fine. But I want nothing to do with Social, Lean, Integrated and Circular. ended up overdrawing their natural it. I’m not interested in the product, just A fascinating example comes from the capital account. Now the scale and the performance. I want to buy light, and field of soil carbon capture—and involves pace of population growth, coupled nothing else.’” Philips ended up creating Carbon Nation, featured in Case 17 with largely linear (take-make-waste) a minimalist light plan making as much (page 29). mindsets, threatens to undermine use as possible of the building’s natural our economies and, potentially, our sunlight, again to avoid providing a More broadly, long-standing models like own civilization. As a result, whether it surplus of material or energy. Industrial Symbiosis and Closed- focuses on carbon in the atmosphere Loop Production need an injection of or plastics in the oceans, we now see The team worked with an installation new vigor, while models like Circular rapidly growing interest in closing such partner, Cas Sombroek, and used Supplies, Collection Service, loops with circular solutions. an LED light fitting for ceiling systems, Dematerialization, Rematerialization adapted to be hung in high-roofed and Trash to Cash are all seeing Insurgents are allying with incumbents offices. A combined sensor and acceleration in the pace of innovation. to create new models. Take the example controller system helps keep energy use The push towards more circular forms of the Dutch healthcare, consumer to a minimum, dimming or brightening of production and consumption has products and lighting company Philips, the artificial lighting in response to motion also been given a big shunt forward with in partnership with the Turntoo or the presence of daylight. Peer to Peer, Repurposing Excess Foundation. As the Ellen MacArthur Capacity and Multi-Sided Market Foundation notes, “Architect Thomas The result: a bespoke lighting system models. Rau worked with Philips to purchase that meets the requirements of the light as a service. The end result was a Rau Architects space, at a manageable bespoke ‘pay-per-lux’ lighting system price. Further, by moving from a one- Not just for business? to fit the requirements of the space, at a time sale to a ‘pay per lux’ model in manageable price.”62 A key element of which Philips maintains ownership of The past couple of decades have seen a the model is that Philips retains control the materials, Philips can recover the growing focus on what companies can over the equipment, ensuring better materials when necessary, while Rau do on sustainability, but the nature and maintenance, reconditioning Architects also benefit from the option scale of the challenges are now helping and recovery. to adapt or upgrade the setup. to expand the focus to the role of cities. New platforms have emerged to network That wasn’t something that Philips Rau went on to set up Turntoo, an cities in this area, including C40. envisaged from the start. Instead, intermediary platform that treats Rau and his team insisted the giant products as resource banks, facilitating When it comes to circularity, it is Dutch company put its thinking cap resource management between interesting that the Seoul Metropolitan on if it wanted to secure the influential manufacturer, supplier and end- Government declared Seoul a “Sharing architecture practice’s business. The user. Having seen the potential of the City” in 2012—and has since launched main Philips contact initially said he approach, Philips are also now further various initiatives to bolster the city’s would have to operate in a “skunkworks” developing the underpinnings for this infrastructure to make it conducive fashion, keeping his bosses in the dark. business model—an example we towards “sharing” efforts. This example Happily, it worked out. examine further in Case 15 (page 29). is featured in Case 18 (page 29).

The idea of selling services rather than products has been around for decades. Closing the loop Manufacturers can retain greater control over the items they produce and over Metals like gold and silver have been the embodied energy and materials. recycled forever, including in companies The customer benefits too, only like Johnson Matthey that use paying for the service used—and often precious metals in products like catalytic enjoying a better outcome, because converters. Aluminum is another metal the manufacturer has greater interest in where the loop has been closed. providing long-life products. In the case of Novelis and Ford, featured in Case 16 (page 29), a cross- industry partnership was key to enabling closed loop recycling. Breakthrough Business Models 29 Emergence Circular X

Case 15 Case 16 Case 17 Case 18 ‘Pay per lux’ lighting Closed-loop requires Soil carbon capture Seoul’s “Sharing City” partnership technologies Initiative

Philips Novelis + Carbon Nation Seoul Metropolitan Ford Government Country Country Country Country The Netherlands Both USA USA South Korea

Status Status Status Status For-profit multinational Both are for-profit Non-profit organization Government body multinationals Founded Founded Founded 1891 Founded 2010 Initiative 2012 Novelis 2005 Website Ford 1903 Website Website www.philips.com www.carbonnationmovie.com http://english.sharehub.kr Website Purpose www.novelis.com Purpose Purpose The company’s goal is to www.ford.com One of the most effective Spearheaded by Seoul’s make the world healthier and ways of stabilizing the climate, mayor since 2011, Park Won more sustainable through Purpose boosting soil fertility and Soon—a former activist, lawyer innovation. In 2012, it began Novelis and Ford have built increasing biodiversity on and social entrepreneur, the to embed circular economy an infrastructure that ensures farms, would be to use Soil initiative’s goal is to connect thinking into both its strategic Ford’s automotive aluminum is Carbon Capture & Storage people to sharing services and vision and mission, using it recycled within a closed loop (SCCS) technologies that are to each other, recover a sense as a driver for innovation, to process, recreating the same evolving rapidly. In a study of trust and community, reduce better deliver on the needs of automotive sheet over again. for the Shell GameChanger waste and over-consumption, its customers. program, Carbon Nation and and activate the local economy. Business model Arizona State University Business model The partnership required proposed a fascinating Business model Across its lighting business, significant investment— spectrum of potential Early successes have included Philips utilizes a Product as including halting one of Ford’s business models that could impressive growth amongst a Service model—where manufacturing facilities to help drive this area forward.65 Seoul’s most successful customers Lock-In and pay enable the switch from steel sharing enterprises in areas for light, while Philips installs, to aluminum, as well as the Business model like car sharing, parking lots maintains, and both recovers construction of new recycling Proposed business models:* and children’s clothes, utilizing and recycles lighting units infrastructure by Novelis a myriad of business models

at the end of life, generating to handle the scrap. Both — Where all CO2 emitted from including Crowdsourcing, additional revenues and companies also collaborated each gallon of fuel sold is Leverage Customer Data, lowering resource costs. on the design of vehicles to stored in the soil, verified by Localization, Open Business, This employs Trash to Cash deliver the aluminum between a third party and purchased Peer to Peer, Rent Instead thinking and promotes a both companies’ sites.64 by the company from “soil of Buy, Repurposing Excess Sufficiency Model. In its The business models used carbon ranchers” enrolled Capacity, Sufficiency Models healthcare business, Philips here include Circular in a special program. and Multi-Sided Platform. utilizes a similar Leasing Supplies, Collection model, refurbishing used units Service, Industrial — Providing ranchers short- Seoul is geared towards for customers.63 Symbiosis, Local Loop term cash to enable them to further diversifying the process, and Trash to Cash. reduce risks of implementing introducing more than 300 ranching changes in the initiatives by 2018, with the form of a pre-purchase of potential to save city residents a certain volume of carbon 12 billion won (US$11 million) storage credits (e.g. 10% of annually, and the Seoul estimated 5 year total) plus Metropolitan Government 1.18 right of first refusal on any trillion won (US$1.1 billion). In additional credits. other metrics, the process is forecast to create 1,280 new * If fossil fuel companies like — Setting up a massive jobs and to cut CO2 emissions Shell use soil carbon capture online sharing and big data by 29,800 tons.66 The initiative as camouflage or even as community that enables has included introducing basic offsetting, they should education, best practice legislation to promote sharing, be challenged and stalled. But exchange and progress creating a Seoul Sharing Hub if they use such initiatives and tracking between rancher/ as a “citizen gateway” to all the investments as a way to bridge farmers and corporations sharing related services and to more sustainable energy or institutions seeking businesses in Seoul, as well and agriculture within a circular data or access to potential as to the subsidies, grants and economy, we should celebrate regenerative agriculture office space needed to incubate and support such schemes. customers. sharing businesses. Breakthrough Business Models 30

Despite apparent evidence to the To sidestep this risk and ensure that 3.0 contrary, the period 2016-2025 could business, markets and economies align prove to be the Breakthrough Decade, around the trajectories sketched in Breaking a period in our collective history where the Sustainable Development Goals, it Through changes that have been talked about helps to understand where we are in the emerge as realities. As is always the wider macroeconomic landscape. Our case in such times, this will not be analysis suggests that we are in the late because we decide to be moral or stages of a long wave economic cycle good, but because events increasingly powered—among other things— 3.1 press in and demonstrate the necessity by new forms of information technology. of urgent, effective action. In short, we As that wave now begins to give way Conclusions & are experiencing the birthing pains of a to a new wave, bringing with it new Recommendations new order. It has geopolitical, economic, forms of digitalization and low carbon social, cultural and moral dimensions. technology, the global business It’s time to disrupt Times like these come along once in a community will need more than just the ourselves working lifetime, at best. SDGs as a guide. The sustainable development agenda, Beyond a series of commissions and which in its current form will be 30 years reports, we see the need for a number old in 2017, is maturing and pushing of major global projects designed into the mainstream. At the same time, to act like “strange attractors” in the the mainstream is pushing into the economic landscape. For physicists, sustainable development realm, with all strange attractors are emergent features of its competing priorities—and in the in seemingly chaotic environments that process bringing significant additional help create new patterns of energy risks of diluting the agenda. flows and activity.

Figure 3 Theory U in Wave 6 Source: Volans

Wave 5 U Bend Wave 6 Begin to perceive Embrace Embrace uncertainty current business uncomfortable and the possibility realities in the wider transition space that the future could system context from old to new be dramatically better

Acknowledge that Stand back, scan Seek out exponential business can play emerging realities, innovations and a more positive, rethink models opportunities purpose-driven role Let go of what Implement business Consider how doesn’t work models that are public and citizen Social, Lean, sectors can best Integrated and contribute Circular

Zone Of Maximum Confusion And Uncertainty

1990 2000 2010 2020 2030 2040 2050 Breakthrough Business Models 31 Breaking Through Conclusions & Recommendations

We need to drive a process of Testing many examples with our basic We find ourselves potentially moving convergence across the different heatmap approach (Panel 2, page 14), through one of history’s great turning elements that now make up the global we found very few that made the full points. To push into the new opportunity Sustainability Industry. We have focused Breakthrough cut—although a fair few spaces, we must work out how to let go in this report on five of these: the had at least some elements of what we of what we know and explore key aspects Exponential, Social, Lean, Integrated must now look for. of what comes next. We outline four key and Circular components. Clearly there recommendations in Panel 3. are others, but taken together, these five For leaders in mainstream business, characteristics can usefully inform the and those in the Sustainability Industry In the spirit of the above, and in mindsets and business models needed who aspire to shape and inform the partnership with the United Nations in the private, public and citizen sectors. necessary transformations in the Global Compact, Volans has launched economic, social, environmental and Project Breakthrough – an online platform The case examples in earlier chapters governance realms, the next steps showcasing how business leaders are are suggestive at best, yet they indicate look remarkably like certain aspects thinking beyond incremental sustainability some of the emergent properties that of Otto Scharmer’s “Theory U” 67 and embracing disruption and exponential must shape tomorrow’s business (Figure 3, page 30). thinking to drive new forms of value. mindsets and models. www.projectbreakthrough.io

Panel 3 Recommendations 1 2 3 4 Shift the Global C-Suite Build the “Bloomberg Co-evolve the Create a global equivalent of sustainable development Terminal” of breakthrough “Amazon.com” of the US Office of Technology dialogue market intelligence business models Assessment (OTA) Shift from the negative The market intelligence The field of business model Monitor, challenge and support to the positive, and from and forecasting industry research is in need of a meta- those who are developing the incremental to the is massively fragmented. language, or a way of bringing the next generations of exponential. It is time for With honorable exceptions together multiple approaches technologies, including businesses to shake up the like McKinsey, some parts to create a converged set those linked to data (e.g. big thinking of their top teams. of Bloomberg (like their of models in service of the data, blockchain, machine Next steps include: New Energy Finance unit) SDGs. Next steps include: learning, virtual reality, artificial and Verdantix, it is not yet intelligence), manufacturing — Work out how to expand invested in the SDG-driven — Identify, monitor and (e.g. 3D printing, robotics, the focus from negative market space. The best way investigate business models autonomous vehicles), impacts and externalities to trigger action may be to based on multi-dimensional genomics (e.g. synthetic to positive impacts and launch something competitive. value creation, for example biology), materials (e.g. externalities. Next steps include: those used by the growing nanomaterials), energy (e.g. number of B Corporations. renewables, smart grids, — Take your top team on an — All the member companies new forms of nuclear power) experiential learning journey of business-to-business — Platforms such as and climate solutions (e.g. to a center of breakthrough platforms like the UN The Business and carbon capture and storage, innovation, be it Silicon Global Compact, Sustainable Development geoengineering). Next steps Valley or a tech hub in the World Business Commission and the UN include: South Africa, and then to Council on Sustainable Global Compact could a slum in a major urban Development and launch a Challenge Prize — Review the history of the OTA center. The B Team to share (e.g. as developed by the (launched in 1972 and closed key elements of market X Prize Foundation68 in 1995), a model widely — Bring in innovators and intelligence where or Nesta69 ) to identify copied around the world. This entrepreneurs who have an it bears on the SDG the best proposal for was an office of the United exponential mindset, to test opportunities. developing this resource for States Congress, whose your thinking, strategies innovators, entrepreneurs, purpose was to provide and business models. — Early sharing on a suitable intrapreneurs, investors and Congressional members and platform, or platforms, to policy-makers. committees with objective — Diversify your Board be followed up with regular and authoritative analysis of with one or more senior progress updates and — The same approach the complex scientific and appointments from the networking events. could also converge with technical issues of the late world of breakthrough recommendation 2, with 20th century. change. the eventual platform combining intelligence — Pull together existing efforts on markets and business in new ways that can better models. inform the process of delivering the SDGs, evolving new conversations and partnerships with Wave 6 2050 players as we did with their Wave 5 counterparts. Breakthrough Business Models 32 Annexes

1 Glossary of Business Models Add-On The core offering is priced De-Materialization Reduction in competitively, but extras drive the price the amount of materials used in the up. Customers benefit from a variable production of products. offer they can adapt. Differential Pricing Charging more to There are numerous business models Affiliation Supporting others to sell those able to afford, and subsidizing and many different ways to categorize products successfully and benefitting those who cannot. them, about which we do not go into directly from successful transactions. Digitization Turning existing products detail in this report but encourage Usually uses some kind of a pay-per-sale or services into digital versions of further reading. For quick reference, system. themselves, offering advantages such as we offer below a short-hand glossary Aikido Allows a company to offer more rapid distribution. of some of the business models something diametrically opposed to the Direct Selling Where products are highlighted in bold italic throughout image and mindset of the competition. available directly from the manufacturer this report. The novelty of the offering attracts a or service provider. Savings from cutting particular type of customer. out the middleman are passed on to the Auction Selling a product or service to customer. the highest bidder. E-Commerce Traditional products or Base of the Pyramid The product or services are delivered through online service targets customers positioned channels only. at the base of the wealth pyramid Experience Selling Value of a product at an affordable price point. Despite or service is increased by an additional small profits with each product sold, customer experience. companies benefit from the higher Flat Rate A single fixed fee is charged sales numbers. for a product or service, regardless of Barter Exchanging goods or services actual usage. with no transfer of money. Fractional Ownership Sharing of a Behavior Change Stimulating certain asset class among a group of customers to embrace new behaviors, owners. such as reducing consumption or Franchising Independent franchisees modifying daily habits. bear the risk of local operations whilst Building a Marketplace Reinforcing the being licensed to use the franchisor’s marketplace through the use of social brand name, products and corporate programs, local market adaptation, identity. and other services such as financing Freemium Allowing users to access a mechanisms or technical assistance. proprietary product or service for free, Buy One, Give One Using a portion but charging a premium to access of the profits from the sale of a product advanced functionalities. or service towards donating a similar From Push to Pull Decentralization, product/service to those in need. adding flexibility to a company’s Cash Machine Customer pays up- processes in order to be more customer- front for the products sold before the focused. company has to cover any associated Guaranteed Availability Makes the expenses. customer’s needs central to decisions Circular Supplies Using renewable, within the enterprise and the shaping of bio-based or fully recyclable materials the value proposition. to replace single-lifecycle inputs. Hidden Revenue Main source of Closed-Loop Production Virtuously revenue comes from a third party who recycling the material used to create cross-finances any free or low-priced a product back into the production offering that attracts users. Advertising system. is a common application. Collection Service Providing a service Inclusive Sourcing Shifting the focus to collect old or used products from of sourcing from volume and price, to customers in a convenient manner. supporting the farmer or producer. Consumer Lock-In A value proposition Increased Functionality/Services that entices customers to continue using Uncovering multiple, alternative, uses a specific product or service regularly. for an existing product, resulting in fewer Cooperative Ownership Where products required. companies are owned by members. Industrial Symbiosis Sharing of Cross-Selling Services or products services, utility, and by-product from outside the business are added to resources among industries to improve the offerings. resource efficiency. Crowdfunding Enabling entrepreneurs Ingredient Branding Inclusion of a to tap into the resources of a wider branded ingredient to a product and network of people to raise money. stressing the added value or positive Crowdsourcing Solutions to tasks association. or problems are generated via an Innovative Product Financing Leasing anonymous crowd, with contributors or renting products to customers. receiving some incentives. Integrator Company has command of Customer Loyalty Customers are the majority of steps in the value-adding retained by providing value over and process, including all resources and above the actual product or service itself. capabilities in terms of value creation. Breakthrough Business Models 33 Annexes

Layer Player A specialized company Pay Per Use Actual usage of a service Sufficiency Model Where customers limited to providing one value-adding or product is metered, and customers are encouraged to consume less – e.g. step to different value chains, thus pay for what is effectively consumed. extending the product life, encourage benefiting from economies of scale, Pay What You Want The buyer product take-back, product exchange, more efficient production and specialized pays any desired amount for a given premium branding, etc. expertise. commodity, sometimes even zero. Supermarket A company sells a large Lean Production The elimination of Seller benefits from a larger number of variety of readily available products and waste within a manufacturing system, or customers. accessories under one roof. Customers the creation of more value for customers Personalization Personalization of are attracted to the wide variety, while with fewer resources. products through the use of data. economies of scale yield advantages for Leverage Customer Data Creating Peer to Peer Based on cooperation the company. new value by collecting customer data among individuals in a group or Trash to Cash Used products are and preparing it in beneficial ways. community connected via a meeting collected and either sold or transformed Licensing Developing intellectual point, usually an online platform. into new products. Resource costs for property that can be licensed to other Physical to Virtual Replacing brick and the company are practically eliminated. manufacturers, transforming intangible mortar infrastructure with virtual services. Ultimate Luxury Where a company assets into money. Produce on Demand Producing a distinguishes its products or services Local Loop Co-locating of production product only when a customer order is by offering high standards of quality or processes in countries or regions where made. exclusivity. the businesses’ main markets are. Product as a Service Customers pay User Design Where a company Localization Favoring local and/ for the functionality of a product, without supports customers to apply their or community-based production and the responsibility of repairing, replacing creativity and preferences through consumption. or disposing it. services such as an online shop, or Long Tail The bulk of revenue is Razor and Blade Basic product is design software – resulting in the generated through a “long tail” of niche cheap or given away for free, while the customer being also the manufacturer. products, which individually, demand consumables are expensive and sold at White Label A White Label producer neither high volumes nor a high margin. high margins. allows other companies to distribute its Make More of It Where know-how and Rematerialization Sourcing materials goods under their own brand name. other assets in a company are offered from recovered waste to create entirely to other companies, creating additional new products. revenue using slack resources. Rent Instead of Buy Customers rent Sources Mass Customization Customizing the product, reducing the capital typically products through mass production using needed to access it. Oliver Gassmann, Karolin Frankenberger modular production systems that enable Repurposing Excess Capacity Excess & Michaela Csik (2014). The Business efficient individualization. capacity is mobilized in new ways, or Model Navigator, FT Publishing Microfinance Providing low-income, with new customers. International. financially excluded, customers with Revenue Sharing Sharing revenues small loans, and at times access to other with ones stakeholders. Lindsay Clinton and Ryan Whisnant. financial services. Reverse Engineering Obtaining a Model Behavior: 20 Business Models Micro-Franchise Traditional franchising competitor’s products, taking it apart for Sustainability, SustainAbility, 2014. with a focus on creating economic and using the information obtained to http://sustainability.com/our-work/ opportunities for the poor to become produce a similar or compatible product. reports/model-behavior micro-entrepreneurs. Products are offered at a lower price Modularity Designing a product based because of no investment in research or The Circular Business Model Toolkit, on smaller component parts that can be development is required. Forum for the Future & Unilever, 2015. independently created, purchased, used Reverse Innovation Simple, https://www.forumforthefuture.org/ and replaced. inexpensive products that have been project/circular-economy-business- Multi-Sided Platform Creating value developed within and for emerging model-toolkit/overview by enabling direct interactions between markets. two (or more) groups, typically through Self-Service Part of the value creation Circular Advantage: Innovative an intermediary platform. Success is of the service or product is transferred business models and technologies dependent on attracting more users to to the customer in exchange for a lower to create value in a world without limits all sides. price. to growth, Accenture, 2015. No Frills Focusing on the necessary Shop in Shop Instead of opening https://www.accenture.com/gb-en/ minimum to deliver the core value new branches, a company finds a insight-circular-advantage-innovative- proposition, where cost savings are partner whose branches can profit from business-models-value-growth shared with the customer. integrating its offerings. Open Business Where collaboration Solution Provider Offering Nancy Bocken, Samuel Short, P. Rana with partners in the ecosystem becomes comprehensive coverage of products & Steve Evans (2013). A literature and a central source of value creation. and services in a particular domain, practice review to develop sustainable Open Source Where the source code consolidated at one point of contact. business model archetypes, Journal of of a product is made freely accessible for Stewardship Model Where products Cleaner Production, Vol. 65, pp.42-56. anyone. and/or services are delivered via means http://www.sciencedirect.com/science/ Orchestrator Where a company that take into account biodiversity article/pii/S0959652613008032# focuses on core competencies within protection, ethical trade, consumer care, the value chain, outsourcing and etc. coordinating other segments. Subscription Model Customers pay a Pay for Success Performance-based recurring fee to gain ongoing access to a contracting, typically between providers product or service. of social services and governments. Breakthrough Business Models 34 Annexes

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Meanwhile, Klaus Schwab of the Books, 2011 edition. https://www.brunswickgroup.com/ World Economic Forum talks in terms 16 Saul Kaplan, Business models aren’t publications/brunswick-review/ of four industrial revolutions in his just for business, Harvard Business boardroom-issue-10/adi-ignatius- book, The Fourth Industrial Revolution. Review, 19 April 2011. measuring-leadership We prefer the greater granularity of https://hbr.org/2011/04/business- 29 Adi Ignatius and Daniel McGinn, Novo the long waves analysis originated by models-arent-just-for Nordisk CEO Lars Sørensen on what Nikolai Kondratiev, Joseph Schumpeter 17 Project Breakthrough is a new online propelled him to the top, Harvard and others, including the Natural Edge platform, launched in September Business Review, November 2015. Project. This is complemented by work 2016 in partnership by the United https://hbr.org/2015/11/novo-nordisk- since 1994 by SustainAbility, and then Nations Global Compact and Volans, ceo-on-what-propelled-him-to-the-top Volans, on a series of societal pressure which spotlights the best, most 30 Lars Rebien Sørensen, Fighting waves since 1960. transformative examples of sustainable diabetes in the 21st century, Harvard http://volans.com/2014/05/get-ready- innovation in three areas: exponential Business Review, 29 December 2015. for-the-breakthrough-decade mindsets, disruptive technologies https://hbr.org/2015/12/fighting- This work underpins the orange line in and tomorrow’s business models. diabetes-in-the-21st-century Figure 1, sketching the emergence of For more information, visit: 31 Jonathan Moules, Solar lights a safer a new scientific (and potentially also http://projectbreakthrough.io path for Tanzanians, Financial Times, economic) paradigm over the same 18 Richard Waters and Leslie Hook, 4 April 2016. timescale. FT Big Read: Tech Investment, 32 John Aglionby, Delivery drones 8 For a better sense of the exponential Financial Times, 28 June 2016. take flight in Rwanda,Financial Times, dynamics that have driven both 19 If digitization is the process of turning 13 May 2016. the socio-economic upsides of information into digital code, then https://next.ft.com/content/478a82bc- capitalism—and the environmental digitalization is the process by which 192a-11e6-bb7d-ee563a5a1cc1 downsides—take a look at the digital code and related models disrupt 33 Tom Agan, The secret to lean planetary dashboard developed for and transform one sector after another. innovation is making learning a priority, the Great Acceleration website. 20 Harada Kazuyoshi, Convenience stores Harvard Business Review, http://www.igbp.net/globalchange/ going to customers’ doors, Nippon. 23 January 2014. greatacceleration.4.1b8ae20512db692 com, 10 December 2015. https://hbr.org/2014/01/the-secret-to- f2a680001630.html http://www.nippon.com/en/in-depth/ lean-innovation-is-making-learning-a- 9 The societal pressures waves have a04904 priority been tracked since 1994, first at 21 Future-Fit Business Benchmark. 34 Frugal Innovation Hub website. SustainAbility and more recently at http://futurefitbusiness.org http://frugalinnovationhub.com/en/ Volans. about.html 35 Ibid. Breakthrough Business Models 35 Annexes

36 The carbon productivity challenge: 49 Interest declared: co-author John 62 Ellen MacArthur Foundation website. Curbing climate change and sustaining Elkington was the founding chair of the https://www.ellenmacarthurfoundation. economic growth, McKinsey Global GRI Technology Consortium. org/case-studies/selling-light-as-a- Institute, June 2008. 50 Grow Asia website. service http://www.mckinsey.com/business- http://growasia.org 63 Thomas Fleming and Markus Zils, functions/sustainability-and-resource- 51 Provenance website. Toward a circular economy: Philips productivity/our-insights/the-carbon- https://www.provenance.org CEO Frans van Houten, McKinsey productivity-challenge 52 Nick Leiber, LaborLink help workers Quarterly, February 2014. http:// 37 Interface website. report sweatshop factory conditions, www.mckinsey.com/business- http://www.interfaceglobal.com/ Bloomberg, 16 May 2013. functions/sustainability-and- sustainability/interface-story.aspx http://www.bloomberg.com/news/ resource-productivity/our-insights/ 38 Interface website. articles/2013-05-16/laborvoices-labor- toward-a-circular-economy-philips- http://www.interface.com/US/en-US/ link-help-workers-report-sweatshop- ceo-frans-van-houten campaign/negative-to-positive/climate- factory-conditions 64 John Gardner, Building a Circular take-back 53 Kenneth E. Boulding, The economics Economy: How Ford, Novelis created 39 Interest declared: Volans has worked of the coming spaceship earth, in a truly closed loop for automotive for Covestro for some years and is H. Jarrett (ed.) 1966, Environmental aluminium, Sustainable Brands, 28 advising the company on its emerging Quality in a Growing Economy, May 2015. Carbon Productivity initiative. pp.3–14. Baltimore, MD. http://www.sustainablebrands.com/ 40 Covestro website. http://arachnid.biosci.utexas.edu/ news_and_views/next_economy/john_ http://www.covestro.com/en/ courses/thoc/readings/boulding_ gardner/building_circular_economy_ innovation/global-trends/population- spaceshipearth.pdf how_ford_novelis_created_truly_cl growth 54 James Greyson blog, How to celebrate 65 Project Meadowlark, Carbon Nation 41 Kristie Thong, Game-changing the 50th birthday of the circular with Arizona State University for Shell business models for green buildings, economy vision?, 8 March 2016. Gamechangers, March 2016. Eco-Business, 3 May 2016. http://blindspot.org.uk/50th-birthday- 66 Cat Johnson, Sharing City Seoul: http://www.eco-business.com/news/ of-the-circular-economy-vision A model for the world, Shareable, game-changing-business-models-for- 55 Decoupling Natural Resource Use and 3 June 2014. green-buildings Environmental Impacts from Economic http://www.shareable.net/blog/ 42 Leena Rao, Alibaba eyes its next big Growth, UNEP, 2011. sharing-city-seoul-a-model-for-the- opportunity: rural China. Fortune, http://www.unep.org/resourcepanel/ world 28 January 2016. decoupling/files/pdf/decoupling_ 67 Otto Scharmer website. http://fortune.com/2016/01/28/ report_english.pdf http://www.ottoscharmer.com alibabas-rural-china 56 Material Flows.net website. 68 The X Prize Foundation website. 43 Rizwan Syed, DoctHERs in http://www.materialflows.net/ http://www.xprize.org/prizes Pakistan empowering female doctors, trends/analyses-1980-2011/global- 69 Nesta website. Al Jazeera, 7 April 2016. resource-extraction-by-material- http://www.nesta.org.uk/challenge- http://www.aljazeera.com/indepth/ category-1980-2011 prize-centre features/2016/03/docthers- 57 James Greyson, How to celebrate the pakistan-empowering-female- 50th birthday of the circular economy doctors-160328143049724.html vision, Blind Spot Think Tank blog, 44 Amos Winters and Vijay Govindarajan, 20 June 2016. Engineering reverse innovations, http://blindspot.org.uk/50th-birthday- Harvard Business Review, July 2015. of-the-circular-economy-vision https://hbr.org/2015/07/engineering- 58 Ellen MacArthur Foundation website. reverse-innovations https://www.ellenmacarthurfoundation. 45 A New Era of Sustainability— org/circular-economy/overview/ UN Global Compact-Accenture concept CEO Study 2010, UN Global Compact 59 Maxine Perella, 10 things you need and Accenture, 2010. to know about the sharing economy, https://www.unglobalcompact.org/ The Guardian. library/230 http://www.theguardian.com/ 46 Sustainability Incorporated, sustainable-business/10-things-need- SustainAbility, 2015. to-know-circular-economy http://www.sustainability.com/library/ 60 The New Plastics Economy, Ellen sustainability-incorporated MacArthur Foundation, 2016. 47 Rick Tetzeli, 9 ways GE executed its https://www.ellenmacarthurfoundation. radical green reinvention, Fast CoExist, org/publications/the-new-plastics- 10 December 2015. economy-rethinking-the-future-of- http://www.fastcoexist.com/3054441/ plastics 9-ways-ge-executed-its-radical-green- 61 Young Global Leaders: Circular reinvention Economy Innovation & New Business 48 Interview on McKinsey & Company Models Dialogue, Position Paper, blog, GE’s Jeff Immelt on digitizing in World Economic Forum, 2013. the industry space, October 2015. http://www3.weforum.org/docs/ http://www.mckinsey.com/business- wef_ygl_circulareconomyinnovation_ functions/organization/our-insights/ positionpaper_2013.pdf ges-jeff-immelt-on-digitizing-in-the- industrial-space Breakthrough Business Models 36 Annexes

3 Other Volans Publications

1 The Stretch Agenda 5 The Breakthrough Challenge 9 The Transparent Economy Volans 10 Ways to Connect Today’s Profits Six Tigers Stalk the Global Recovery— 2015 With Tomorrow’s Bottom Line and How to Tame Them John Elkington and Jochen Zeitz Volans for the Global Reporting 2 The Breakthrough Forecast Jossey-Bass/Wiley, San Francisco Initiative Market Sweet Spots 2016 to 2025 2014 2010 Volans 2015 6 Breakthrough 10 The Biosphere Economy Business Leaders, Natural Limits Can Spur Creativity, 3 Interface Market Revolutions Innovation and Growth The Untold Story of Mission Zero Volans Volans (lead author Alejandro Litovsky), Volans and Interface 2013 Tellus Mater Foundation and B4E 2015 2010 7 The Zeronauts 4 Investing in Breakthrough Breaking the Sustainability Barrier 11 The Phoenix Economy Corporate Venture Capital John Elkington 50 Pioneers in the Business of Volans with Global Corporate Earthscan/Taylor & Francis, Oxford Social Innovation Venturing, the John D. and Catherine 2012 Volans for the Skoll Foundation T. MacArthur Foundation and Social 2009 Investment Business 8 The Future Quotient 2014 50 Stars in Seriously Long-Term 12 The Power of Unreasonable People Innovation How Social Entrepreneurs Create Volans and JWT Ethos Markets That Change the World 2011 John Elkington and Pamela Hartigan Harvard Business School Press, Cambridge, Massachusetts 2008 About the Business and Sustainable About Volans Development Commission

The Business and Sustainable Development Founded in 2008, Volans is a London-based Commission aims to accelerate market trans- transformation agency. We work with global formation and advance the world’s transition to a companies, innovators, government actors and more prosperous, inclusive economy. Our mission civil society to help them move beyond incremental is to make a powerful case—supported by sound change to address systemic challenges. We call this evidence, rigorous research and compelling real- ‘Breakthrough’. Our work is focused on stretching world examples—for why the private sector should thinking, mindsets and behaviours through a mix of seize upon sustainable development as the greatest agenda-setting, advocacy and advisory projects. economic opportunity of a lifetime. Our flagship report, to be launched in January 2017 will show www.volans.com how the Sustainable Development Goals (SDGs) www.projectbreakthrough.io —17 objectives to end poverty, reduce inequality and tackle climate change and other urgent challenges by 2030—provide the private sector with the framework for achieving this market shift. The report will serve as the foundation for launching initiatives to inspire and mobilise businesses to achieve the SDGs. www.businesscommission.org

ISBN: 978-0-9562166-6-3