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