Transcript - Sustainable business models (Summer Webinar Series - Week 2)

(CSI Swinburne's Social Impact Summer Webinar Series - Week 2)

Hi, and welcome to the Center for Social Impact Summer Webinar Series for 2019. I'm Chris Wilson, and I'll be facilitating today's webinar on Sustainable Business Models. Before I introduce our speaker, I'd like to do an acknowledgment of country. On behalf of those present, I acknowledge the Wurundjeri people of the Kulin Nation, who are the traditional custodians of the land on which we now meet. I pay my respects to their elders past, present, and emerging. I also pay my respects to all aboriginal and Torres Strait Islander people of Australia, and hope that the path towards reconciliation continues to be shared and embraced.

Today we are lucky to be joined by Chris Dembek, who's lecturer here at the Swinburne Center for Social Impact, in the social impact area. Welcome, Chris.

Thank you.

So the way today's webinar will run is that Chris is going to start us off with a presentation defining and exploring the concept of sustainable business models, and providing us an example of that. This will take us through the first 15 to 20 minutes of the webinar. And then we'll have about 10 to 15 minutes for questions before we wrap up. You can submit your questions using the text function. And I'll read these out during the Q&A part of the session. For now, I'll leave you with Chris.

Thank you very much, Chris. And thank you very much, everybody, for joining our seminar. So really what happens is that at this state of our financial steps, that we immediately have to switch to a much more sustainable business and much more sustainable future. And what I want to do with you today is to explore how business models can be used for that transition. So as Chris mentioned, three parts of the talk. First, I will take you very quickly through the concept of business models.

Then I will introduce what are sustainable business models, comparing them to conventional business models. And then I will use an example to show you how business models, and sustainable business models, can be used for transition towards more sustainable future. Right, so let's start with what the concept of business marketplace. And traditionally, I think most of people see business models as a way to explain how an enterprise delivers value for its customers, and how it convinces the customers to pay for this value, and converts this into profits.

So this is the traditional, conventional way of looking at this. And probably the most common way of looking at business models, and illustrating business models, is by looking at the elements that compose a business model. And there are different ideas of how many and what these elements should be. Let's not enter into that discussion in detail. I think the most common one is what is called sustainable business model canvas.

So it is made of nine different elements, and it is depicted, usually, in a table like that one, where we have nine boxes. And it is really a nice way of showing a business model on one piece of paper, and looking at somewhat holistic perspective. So we have a value proposition in the middle, and then that value is delivered through channels to different segments of customers. And we have to have relationships with these customers. And on the other side, we have activities, resources and partnerships to create this value proposition.

And then at the bottom, we have what we call-- what I call financial model, with costs and revenue streams. Pretty simple. And I will maybe show you some example of how it works and what may change-- how the business model can be designed and changed. So let's take an example of a water filter company. Let's say we are a company that produces water filters, and delivers and sells these water filters in remote areas of third world countries, to villagers so that they could have pure drinking water.

So we could do this in many different ways, using different business models. For example, we could set up water centers that our company owns in remote areas, and then sell, through these water centers, filters to the villagers. We could also employ villagers to be distributors of our filters. And that would change the distribution channel in the business model. We could also, for example, sell the same filters, not directly to the villagers-- but we could sell the water filters, for example, to nonprofit organizations-- non-governmental organizations-- that work in these areas.

And they could, for example, gather donations, and donate these filters-- so sell them at a discounted price-- whatever they think. And that would not only change the channel, but it will also change the customer. Because now the end user of the filter would still be villagers, but our direct customer would be an NGO. We could also think about not really selling the filters, but changing the value proposition in a way that we say, so we provide the filter to the villagers, but they don't buy them. They just get them in their homes, and they will be paying by a per liter of filtered water.

So we could set up technology inside, and that would change, also, a value proposition. So this is how we play with the business model. And obviously, we can use them almost like LEGO blocks to construct different business models. And the same product can be taken through a different business model. And you will have a different result. So this is how business models work. Now let's have a quick look at what sustainable business models are. So in this conventional, there are actually four key distinctive areas, and in conventional business model, we have profits. And profits usually are seen as a goal.

In sustainable business models, profits are mostly seen as a tool to create social and environmental benefits that come first. Then we have a key kind of focus, and in conventional business models, it's the firm. Like in an example that I have given, it would be our firm. They'd be the producers, and we see everything from that perspective. Sustainable business models have a bit different focal point, which is the system. So I will give an example of that in a moment, in the case. In terms of value, in conventional way of seeing business models, value is created for a client-- for a customer-- and then captured by the firm and converted into profits.

This is how we think about value, usually, in economic form. In sustainable business models, we see value, often, in the much broader way. First of all, for multiple stakeholders-- not only for customers. But we design and deliver value for other stakeholders. It can be government. It can be whoever. And often that value is not just in an economic, monetary form, but in different forms. And you'll also see that in the moment, as an example.

And fourth area of distinction, that is really very important, is time. And usually, in conventional way of looking at business models, we see kind of just one perspective on time. And often it is really short term oriented. It is very often mandated by the reporting periods in our economy-- so quarterly reports and profits. And this really provides this dominant time perspective that we have in business models.

In sustainable business models though, first of all, that perspective of time is multiple, to have to deal with multiple time frames. And also a dominant-- we look for a balance of between short and long term. And often we see that really the dominant perspective is long term. So let's look at a case of a particular organization. And in this case, it's Health in Harmony. It is an organization working in Indonesia, and they had the great achievement in solving two very complex problems-- one, illegal logging in Western Kalimantan, and also contributed greatly to alleviating poverty in the area at the same time.

So when people who set up these organizations arrived in Western Kalimantan, they wanted to study orangutans, and didn't even think about setting up any venture or an organization. What they saw-- there was a national park, and they saw that despite the area being protected, there was illegal logging going on at such a rate, that in a few years there would be no forest left. So no habitat for orangutans, nothing to study. So they decided to actually see what the problem is, and address that problem.

So after study, they actually figured out that that was [INAUDIBLE] villagers who were logging. And that a lot of money that was coming from logging, that the villagers were spending on health care. There was no health care nearby. They had to travel far. It was bad quality. It was costly. So a lot of money was going into health care. As they logged the area, this all became poorer and poorer. And they had poorer diets. They were getting sicker. They needed more health care. They needed more money. They logged more. And it was kind of a vicious cycle.

So they decided to break that cycle. And they set up, altogether, four different activities linked. And I will go through and tell you how they did that. So first of all, they actually decided to set up health care that was coming to the villagers, rather than asking them to go and travel. And at the same time, they said-- and they started teaching villagers how to farm organically to provide an alternative source of income. And they started linking these activities in a very interesting way.

So they said, well, if you don't have money, you can pay for health care in natural fertilizer. So-- and because it was becoming a trade commodity-- because people started farming, and you could actually integrate printer money. Then they employed local villagers to be kind of rangers. And these rangers had two things to do. First of all, they were helping people to convert to organic farming from logging. And then second, they were also raiding villages. So those villages where people stopped logging altogether received 70% discount for health care services.

So all of a sudden, it created the great pressure, where if your neighbor is logging, I have-- if my neighbor is logging, I have to pay 70% more for health care. Why should I do that? I will ask him [INAUDIBLE].

And as time was going on, people had more and more skills in farming. And then they-- Health in Harmony-- used that to set up a nursery, where they started growing seedlings and started to reforest the area. That also caused another consequence, where people saw that to grow a tree from seed to that big, really takes a long time. And if I cut a tree here, I will never see a tree in that place again, even if I immediately plant another one in the same spot.

Altogether, over a period of five years, Health in Harmony almost entirely stopped illegal logging in the area. And, as I said at the beginning, contributed to alleviating poverty in the area. And nowadays, they have a really good quality [INAUDIBLE] hospital in that place. So this is the power of sustainable business models, and how we can use sustainable business models for a more sustainable future. So let's have a-- quick go back into what sustainable business models are, and to understand how it works in practice.

So first of all, profit area. So Health in Harmony used profit as a tool to stop illegal logging, first of all, and alleviate poverty. And they used, for this, multiple income streams. And especially at the beginning, they also had to include donations into that [INAUDIBLE]-- so profit just as a tool. The focal point was definitely a system, and they saw the whole community as a system. And they had to understand the community works as a system and how it changes. And they understood, and so the entire business model as a system of connected activities.

Value-- they created value for multiple different stakeholders in multiple forms. So the government was really happy. The villagers were happy. They provided employment to many people also from outside the area. And time-- it was a long term perspective, as overall. But also they had to deal with multiple concepts of time, and they had to shift the villagers, above all, from a kind of very short term orientation to a long term orientation. So this is how sustainable business models work in practice.

And there are obviously different types of sustainable business models. So here we have seen one that is used for eradicating and dealing with really complex problems. We have other types of sustainable business model. Some, for example, set up in a circular economy. Some use to introduce sustainable technologies. So different types-- but there are also three very important lessons that we have from the case of Health in Harmony. And the first one is we have to address causes, not symptoms, of the problems if we want to shift into more sustainable future.

So imagine if Health in Harmony addressed directly the logging, and tried to convince people to stop logging, rather than delivering them health care and other services. They would have never achieved what they have achieved. Second is to see and create connections between the activities and in the business model. So we usually see them, as you saw, in conventional way, a set of elements in a box. We have to start seeing the connections, because really, that kind of transitional power lies within these connections. So again, we could imagine if we didn't have all these links between the activities that we have.

So if we don't have the discount price, and alternative payments and everything-- again, that we could have had all the four activity-- types of activities, but probably the result would have been very close to where they were. And third important lesson is not to fear change, because as the systems and as the problems that we deal with change, we also have to change and adjust our business models. And this is something that really, I see in my research, is very difficult for a lot of people. So these are the three takeaways and three lessons. And I hope you enjoy it. And you now see what the sustainable business models are. And there is a lot more to learn and to study. And I hope we can-- I have sparked your curiosity in that area. Thank you very much.

Terrific. Thank you so much, Chris, for such a enlightening presentation. And what a fantastic example of a sustainable business model and practice-- in practice in Indonesia. Thank you, so much. We now have about five to 10 minutes for questions. So we have a few questions in already. So we'll start those off in just a moment. All right. First question is really just about whether this sort of sustainable business model thinking is always used to solve such complex problems. I mean, that was quite-- obviously, it's a fairly broad community wide issue. Is that-- are there other ways in which we can use a sustainable business model, that may be a smaller scale, for instance?

Yeah, so-- and scale is, actually-- so two things. And thank you. You've touched, actually, a very important point, which is scale. So first of all, now the example that we have seen here is probably kind of on the high end of complexity, really. Because we are dealing with two very complex problems, one, deforestation and second, poverty. And as we've seen, it is really successful in these cases. But we don't have to always use it just for solving so complex problems.

So we can use these same kind of sustainable business model lens in just shifting mainstream companies to more sustainable activities and to sustainability. Scale, as I said, is a very, very important one, because here we see that really, it has to be very, very deep. That's especially if you're targeting complex problems. So scale, we usually think about scale as blowing up and kind of growing one business model very large in size, which not necessarily is actually something that we should do, especially if we are targeting complex problems. In this case, scale for Health in Harmony is actually applying the same approach in different places, but kind of starting from scratch rather than growing. And the solutions are different, because the systems and problems are different in different places.

Fantastic. I'm just looking at some questions here. OK. So how can the business model canvas illustrate sustainable business models? How can it be used to illustrate that [INAUDIBLE]?
Well, that's actually a difficult one, because sustainable business model canvas-- business model canvas is really great in kind of simple way showing the business model on one piece of paper. But obviously, it has, also, limitations. And these limitations are especially big in sustainable business models, because sustainable business models need these links, really, as we've seen-- activities only are only a system in themselves. So it is really very difficult to illustrate, using business model canvas, the depth and the complexity of sustainable business models. And there are kind of trials currently. There are some other tools that try to illustrate sustainable business models.

Can you tell us a little bit about those tools, and where they may be being developed? Is there--

Sure. A lot of them are being developed, actually, in Europe. So Jan-- Professor Jan Jonker from Netherlands-- is developing what he calls flourishing business model and flourishing business model canvas. There are other kind of trials in terms of sustainable business model canvas. So even if you just Google sustainable business model canvas, you will see several--

[INTERPOSING VOICES]

--iterations and options. And there've been trials that increase the number of boxes from nine to 27. The question is, you know, where is it simple enough to get it, and also reflect the depth of sustainable business model, and not make it too complicated. There is a fine balance that is difficult to strike.

So sounds like there's some models out there, and people can also have a look around for those.

Absolutely.

So that's excellent that there are some tools-- tools available and in development. Obviously, those are things that take time. And I'm sure your own work in the area is also contributing to that development of the sort of sustainable business models in the social impact space.

Yes, that's true. And I find especially useful what is called activity system perspective for business models. So it was developed several years ago by Professors Zott and Amit. And I find this perspective really useful for trials with sustainable business models.

So that's something to look out for. I just got another question here about-- we're talking in the example, it seemed like we were talking about, effectively, non-profit organizations. And the question is whether for profit organizations could use a similar tool, or similar way of thinking about sustainable business model.

Absolutely. So obviously, the entire field of business models have developed in strictly for profit area, right? And I've heard a lot of nonprofits saying, also, business models are not really for us. They are just full for profit organizations. I think that is kind of a limiting thinking, because the concept of business model itself is really very useful, and very powerful, as we've seen. It can even be used to address very complex problems. And really what changes between nonprofits and for profit organizations is often only what we call kind of financial models.

So how the money or the income is generated. So non for profits will often use some kind of donations or grants. However, then we have the entire space of-- that is in between nonprofit and for profit space now, with social business and social entrepreneurship. And I think for business models and sustainable business model lens, is basically can be used by all organizations, including governments.

Yeah, OK. Actually, there's a question here about perhaps whether you have another example of maybe not as complex as the logging example, but is there another example of this sustainable business model you could extrapolate upon?

Yeah. So there are many, many different examples. So kind of-- a lot can be found in circular economy.

Circular economies.

Yes. And that is a space that is very dynamically developing, and really using a lot of the sustainable business model lens. So for example, Nancy Buchan-- who is a very kind of renowned figure in sustainable business model area-- has set up a company in Netherlands that basically uses and tries to shift people approach to washing, and make that much more sustainable.

Washing?

Washing. So we're-- now they've selected really an off top and very efficient washing machine. And they deliver it to people and it's pay per use model. And it shifts people to actually using the machine as effectively as they can, and lowering what-- lowering the use of water, lowering use of electricity. So that's much more simple way of using sustainable business models. And we actually have a great example, also, in Australia, in food industry using [INAUDIBLE] technology. So a company called Sundrop Farms-- actually, I'll see if I'm correct. They supply currently about 15% of all tomatoes to [INAUDIBLE]. And when we look at their model, they actually use salt water to farm tomatoes on arid land, where previously, it was just a desert.

Wow.

And then the crop, actually, has much more yields. And they don't use chemical input-- chemical fertilizer or chemical inputs in the production. It's all renewable energy based. And really the crops now are almost independent of climate, also.

Wow.

So that's another really great example, in strictly for profit space.

Yeah. Is that example written up somewhere that we could suggest people have a look at, or is that something-- a piece of work to be done--

[INTERPOSING VOICES]

Actually, I think that there has been quite a lot happening and kind of a lot of people really talking about that example. So Financial Times, I think, two years or so, published an article. If you Google it, or if you put it on YouTube-- Sundrop Farms-- you will have really great examples.

Terrific. Fantastic.

Very, very easy to find information [INAUDIBLE].

OK. So something to look out for on that one. And the circular economy material-- again, with having a search around that. And this washing example-- I'm sure there's other models that have been written up in both the academic space, and also the sort of gray literature around not for profit and policy think tanks, et cetera, are no doubt working around thinking that sustainable business space.

Right. And that shows the breadth-- the publication of sustainable business models. And using that lens, we can achieve a lot, I think.

Terrific. Thanks so much, Chris, for your time. That was really an excellent-- very fast and quick overview of the sustainable business model movement process, and an excellent example-- a really quite a thrilling example about systems thinking, and how we can overcome very complex issues by shifting our concept around how business models might be applied in sort of sustainable-- in the sustainability area. So big thank you to you, Chris.

Thank you very much. We've just scratched beneath the surface, so I hope that everybody who listened to us kind of will go and explore that area themselves, because it is a really powerful place.

Fantastic.

Thank you very much, and thank you for attending.

Thanks so much. So this is the first-- sorry. This is the second of our 2019 summer webinar series. And you can join us next week when you actually can see me. I'll be presenting the results of the 2019 Australian Digital Inclusion Index. So, thanks very much for your time. And there will be a recording of this webinar available at a later date. Thanks and good morning.

Thank you.