April 2014 Editor's Choice: Disrupt or be disrupted: how business models are transforming the world
“Disrupt or be disrupted”.
That’s one of the key messages in a new report by SustainAbility looking at business model innovation. In particular, the report focuses on innovation in the context of sustainability and how different game-changing innovations are being born from the pressing need for more sustainable approaches to production and consumption.
Innovation is one of the hottest topics in business today and the idea of finding a new business model that can transform an industry and create significant value for the business, customers and society at large is one that most business leaders (and social entrepreneurs) aspire towards. It’s not at all uncommon these days to see whole industries shaken by new business models that deliver value to customers in smarter, better ways. The music industry is a classic example; media is another. But the report rightly points out that although many executives may see the opportunity (or the threat), they are stuck within a comfort zone that leads to incremental, rather than transformational innovation. And this is a missed opportunity when it comes to sustainability.
The report attempts to go look beyond the ‘usual suspects’ (Zipcar, M-Pesa) by looking at emerging business models that are pushing the boundaries of what’s possible. It identifies 20 distinct business models and places them into five categories: Environmental Impact, Social Innovation, Base of the Pyramid, Financing Innovation, and Diverse Impact.
One of the companies highlighted in the Social Innovation category, Sylva Foods, is a Zambian SME that aims to increase sales of traditional Zambian foods by working with rural farmers. Sylva Foods is given as an example of ‘inclusive sourcing’ whereby supply chains are redesigned to be more inclusive, focusing on supporting the farmer or producer rather than just focusing on the qualities of the product sourced. This business model increases opportunities for thousands of farmers, creates jobs directly, improves nutrition and reduces waste. This is an example close to the Practitioner Hub, as Sylva Foods was supported through the Business Innovation Facility (BIF) and the founder, Sylvia Banda, was a keynote speaker at the Innovations Against Poverty (IAP) Annual Conference and Awards in 2013.
The four models within the Base of the Pyramid category all resonate with the business models we’ve seen in BIF and IAP. Perhaps the most common similarity is with the ‘Building a Marketplace’ model, whereby companies go beyond product development and actually build new markets including through consumer education, partnerships, adaptation to local contexts, delivery of social programs, and bundling with other services such as microfinance. Aspects of this are likely found in most if not all BIF and IAP initiatives, and these are core themes in the recent reports on the lessons from BIF and IAP. The other three models - Differential Pricing, Microfinance, and Micro-Franchise – are more specific yet present in different initiatives to various degrees. For example, IAP grantee Sanergy is an example of a micro-franchise that provides a ready-made business for willing entrepreneurs, while M-BIRR and Finaccess are enabling microfinance transactions through mobile platforms.
Two of the report’s findings that I found interesting were that business model innovations tend not to come from the big Fortune 500 companies but rather small to medium sized companies; and most of the business models are built ‘from scratch’ rather than transforming existing models. This is good news for the many social entrepreneurs out there who are developing innovative solutions at the base of the pyramid. It’s also an interesting finding given some of the discussions on the Guardian and Business Fights Poverty about whether it’s more effective to focus on trying to change big companies (perhaps through their CSR agendas), or instead encourage start-ups that have a great idea. Indeed, the report acknowledges that social entrepreneurs are leading the sustainability agenda and have the advantage of being smaller and nimbler than multinationals, able to adapt their models more easily to the market and develop inclusive business models from the start.
The report’s focus is on larger companies and the examples are relatively familiar, though well organised and presented. Nonetheless, it’s a great read for those interested in business models and the various different ways that business model innovation is disrupting the way goods and services are produced, marketed and consumed for a more sustainable future.
Suzanne has written this post as our 'Guest' Editor's Choice for April 2014. To see the Editor's Choice posts from previous months written by the Practitioner Hub Editor Caroline Ashley and other Guest Editors click here.