“What is a business model?” is a popular opener in business publications. NBS interviews Florian Lüdeke-Freund to learn more.
A Discussion with Florian Lüdeke-Freund, Lead Researcher, Sustainable and Innovative Business Models
In this interview, Florian Lüdeke-Freund discusses his scientific inquiry into sustainable and innovative business models. This research project was initiated after the NBS-SA Leadership Council asked, “How are innovative business models creating shared value.“
NBS: What exactly is a business model – and what makes one sustainable or innovative?
“What is a business model?” is probably one of the most popular openers in business model publications. Many answers have been given. However, I disagree with authors who suggest that we have not reached consensus on what a business model is. We simply have to deal with multiple consensuses. We have to consider that business models are not tangible objects. They are social constructs. That is, ideas, concepts or frameworks that people develop to do something particular with them. A degree of context dependency informs how a business model functions in reality – how it can be represented or how a scientific inquiry has to be structured to analyse it.
For our project it will be helpful to start from the value creation function of business models, which most business authors agree on. That is, they see business models as devices that create, deliver and capture value, based on how a company configures its resources, capabilities and stakeholder relationships. What we have to understand is how we can move from a narrow focus on financial value to societal values.
People also tend to confuse particular business model representations with universal definitions. While the famous Business Model Canvas of Osterwalder and Pigneur is the most recognised and applied visual concept, we must be careful not to interpret it as the only valid business model definition. In many areas, such as sustainability research, concepts must be adapted to the research and questions they are informing.
NBS: Florian, tell us about your background and work on business models? How did you stumble upon this topic?
I came across this topic when working with Prof. Stefan Schaltegger of the Centre for Sustainability Management at Leuphana University in Germany. I felt there was a need to connect corporate sustainability research with existing business model theory. Some ideas contained in my first working paper on the subject still influence my publications and projects.
More recently, I launched the collaborative platform SustainableBusinessModel.org, where readers find an open literature list as well as information about events and research projects.
As with this NBS project, establishing sound connections between sustainability issues and business models still requires a lot of basic research. We have to look at what notions like “business model” and “shared value” really mean. We hope to identify the essentials of these concepts and structure their relationships in a useful manner for researchers and practitioners.
NBS: Who has joined your team for this project?
The expertise of the researchers in our team is fundamental for this project. Nancy Bocken, Associate Professor at TU Delft, and Lorenzo Massa, Assistant Professor at Vienna University of Economics & Business, are both exceptional business model researchers as well as consultants and executive trainers, who are doing cutting edge research in this area.
On the South African side, Alan Brent, Professor of Engineering Management and Sustainable Systems at Stellenbosch University, and Josephine Musango, Senior Lecturer in Stellenbosch, join the team to ensure that our work addresses South Africa’s most pressing societal problems, which we will translate into business model challenges for creating shared value.
NBS: The project is still early days, but could you give us an idea of what to look forward to and where you see the opportunities with this work?
We structured this project around three major topics identified by the project Guidance Committee: (1) shared value, (2) sustainable business models and (3) business model innovation. These topics are established research areas, but their interrelations are unclear. We want to develop an understanding of shared value not only as an outcome, but also as a motivation for new business models, which in turn have to be created through business model innovation.
Moreover, we aim to identify best practices. For instance, start-ups like SolarWorks combine solar technologies and industrial design to provide affordable energy solutions to people without regular access to electricity. SolarWorks’ founders understood “that light was an issue” and came up with light and charging solutions that are useful in both well-connected and isolated regions.
Besides start-ups, an increasing number of large corporations are recognising their social responsibilities and reflecting on the different kinds of value they might and should create. Our approach will be to structure our review and report along these and further issues, guided by what we learn from the current scientific literature.
NBS: What should we be looking out for on the project when it’s complete?
I expect that in our project the business model will mainly be interpreted as a “market device” – as a framework that people from different backgrounds can use to exchange ideas about how organisations create, deliver and capture value. Value creation is at the heart of the business model. And more importantly for our project, the creation of values (plural!) that go beyond the corporate bottom line. A crucial function of business models, in my view, is to help so-called sustainability innovations enter the market and take over large market shares. If you look at the flagships of environmental sustainability, such as renewable energies, you will realise that technology is only one ingredient. Entrepreneurs and corporate managers with their new business models are the real change makers.
If you look at the multi-facetted phenomenon of social entrepreneurship you will immediately recognise that “marketing the social good” is highly dependent on business model innovation. I cannot imagine a greater challenge than providing socially beneficial products and services to target groups who cannot afford them. How can you solve this puzzle? I’m not convinced that work focusing on consumerism at the “Bottom of the Pyramid” is the answer, but rather new business models that connect people to key services like health care and education, but also promote entrepreneurial activity to free people from their dependency on foreign aid. The Grameen Foundation is a good for example of an organization that motivates entrepreneurship and new business models in developing countries.
NBS: Is there any way that the NBS community can assist or contribute to your work?
We would be pleased to hear of companies who are actively dealing with issues of corporate sustainability or shared value creation. Often, companies are dealing with these issues, but do not use the explicit notions we are used to from an academic perspective. We are thus inviting entrepreneurs and managers from South Africa and more broadly to contact NBS-SA and provide some information on their sustainability-oriented business models, innovation approaches and tools they use to create shared value and contribute to sustainable development.
Since the publication on this interview, the research has been released. Download the executive guide to learn more about Business Models for Shared Value or see the full results outlined in the main report.