Over the last few years a term has been on a seemingly inevitable rise: sustainable business model. A conversation I had yesterday reinforced one of the dividing lines I’ve seen, especially in sustainability circles, between the organisation-level and system-level.
Sustainable Business Model. It’s new! It’s exciting! It’s obviously better than, you know, incremental change. But what exactly is it?
Even without the tricky first word, business model means different things to different people.
On one side you have the term applied at the level of an individual company. Does X have a product or a service business model? This is where most business writers and academics are.
business models are at heart , stories–stories that explain how enterprises work. A good business model answers Peter Drucker’s age-old questions: Who is the customer? And what does the customer value? What is the underlying economic logic that explains how we can deliver value to customers at an appropriate cost?
This is the sense that WRAP have with their Innovate Business Model Map.
But others have a broader motion in mind. They mean something like ‘an economic system where companies are expected to maximise short-term rerun regardless of consequences’ – in short, the Anglo-Saxon version of capitalism. So, when they say ‘companies need a new business model’ they mean something like ‘companies need to pursue a social purpose’ and/or ‘companies need to purist long-term value creation, and so have a stake in making a sustainable future’ and/or ‘organisations need to be accountable to their stakeholders’ and/or ‘enterprises need to be cooperative’.
As it happens it’s not just sustainability folk which have this broader notion. Noted economist and FT commentator John Kay has long critiqued the American Business Model, in interviews and his book, The Truth About Markets.
My view is that these two perspectives are talking about different things. The first is about companies, the second is about the economic system that a company is within.
If you try to apply these different meanings at the same level – the organisation – then you can accidentally force yourself to choose between, say, trying shift from products to services or registering as a public-benefit B-Corporation. But, in my view, this conflates the underlying economic logic with legal form. A for-benefit company could sell products or services. A product-based business model have positive sustainability outcome, even if incorporated as a for-profit company.
That’s why I prefer to refer to ‘business model’ for the organisation-level and ‘economic model’ for the system-level.
Of course, we need change at both levels to change. We need an economic system that promotes long-term value creation, and therefore supports companies innovating their business models so they can make succeed through sustainability. I think – think – we’ll be more successful if we use different terms to mean different things, rather than the same term to mean different things.