Best Practice

Creating sustainable business models with digital technologies

29.04.2021

No matter the reason (ecological, economic or social): Sustainability in companies should not just be an image factor, but rather should be viewed as the basis for a successful business model. After all, a sustainable business also leads to higher sales revenues - and such a business can be developed in just a few steps.

Consumers are supposed to regularly replace their old products, such as smartphones. At least that is what is suggested by advertising, temporary contracts and technical innovations. But we increasingly have to face the question of what should be done with the old devices. There are frequent media reports about the waste that is exported to Africa or Asia, and the resulting consequences. 

Cell phones are just one example of today's throw-away society. So perhaps it is time for a new business model? In view of growing calls for more environmental protection and sustainability, companies can no longer afford to simply sell products. During the product development process, they must also think about the materials that make up the product, and what will happen to them at the end of the life cycle.  

The idea of sustainable business models also takes into account the obligation to society as well as principles of efficiency. This opens up value creation, market and customer opportunities, and also allows companies to increase customer loyalty and employee retention, realize potential cost savings (e.g. through the prudent use of resources) and increase the overall success of the company.

Three dimensions for sustainability

Sustainability can be divided into three basic dimensions:  

  • Ecological sustainability targets the protection of the natural environment, which provides resources such as water or renewable raw material, and which absorbs residual materials such as effluents and exhaust gases. 
  • Economic sustainability strives to maintain the economic capital. This can include both financial and physical/knowledge capital. 
  • Social sustainability comprises the maintenance of social systems that guarantee the rule of law, security and health, as well as individual participation in society, e.g. through education. 

Save – but not when it comes to sales

A sustainable business model provides companies with more than an improved external image. It also saves costs due to lower material costs and resource consumption. Repairing instead of creating something lowers energy consumption, but also sales revenues - at least at first glance. This is why evaluations of how a sustainable business model can be implemented in a financially feasible manner must be performed at an early stage.  

The fact that this strategy can also lead to sustained success is demonstrated by the quick ascent of start-ups and established companies that have committed themselves to a sustainable digital business model. The rapid development of new technologies creates ever new opportunities in this regard. 

Some of the most prominent examples are platform technologies for the Shared Economy. They include car-sharing or Call a Bike, room rentals such as Airbnb, or the use of devices such as Fat Llama. Similarly, telemedicine providers or data market places such as DAWEX also enable the joint use of resources by patients and companies.

Everything from one source: the Product Service System

Besides the right technology, companies can also use the approach of the Product Service System (PSS). It shifts the business focus from the development and sale of physical products to the provision of an entire system consisting of products and services. After all, they work together to meet specific customer requirements.  

Anyone who has already placed products successfully in the market can offer complementary services by adding digital services such as an app or a platform. Examples include Daimler and BMW, which offer a car-sharing service through the Share Now platform. 

Complementary products and services also increase the product’s attractiveness for the customer. Because they enable a smooth experience and are easier to adapt to customer requirements. This in turn increases demand, creates an additional income stream for the company and improves the predictability of costs and revenues.

These questions must be answered in the first step towards a successful PSS

Before a Product Service System can be developed, the different entry options must be assessed carefully. They include:  

  • Maximize use of materials and energy efficiency  
  • Use renewable resources and natural processes 
  • Fewer product sales, more usage-based sales 
  • Incentives to save (lower consumption of products) 
  • Partnership with non-profit organizations and projects 
  • Increase efficiency through extensive scaling 


Then, the company should ask itself the following questions: 

  • Do I have to sell the product, or could I rent it out and transform it into a service?  
  • If I offer the product as a service, how many products do I have to produce to create an adequate offering? 
  • Can the product be made entirely of sustainable materials?  
  • Do customers recognize the added value of the sustainable product, and are they ready to pay more for that? 
  • Can I offer a service that is sustainable and that does not exist yet? 

Developing the optimum business model

The answers often suggest sustainable Product Service Systems that are based on extensive scaling and products-as-a-service. For example, many devices and services can be leased or used jointly. Examples range from cars and electric scooters to residential units and offices, and Cloud-based mail and storage services. Numerous examples from industry, such as Uber, Microsoft 365 or Amazon Web Services, show that such services are sustainable and also sell extremely well.  

Knowledge about the different aspects (ecological, economic or social) helps with defining and developing a sustainable business model. Once the decision for a Product Service System has been made, companies must evaluate whether the cost is justified by possible barriers to market entry. Afterwards, they must develop a rough concept that also clarifies the question of which technologies will be used. After a Proof of Concept as well as the first test runs for bug fixes and evaluations at the customer level (e.g. hypothesis validation), the roll-out of the Product Service System can proceed.

Conclusion

Sustainability is not a fad but rather a requirements of customers, society and legislators. And even though it may not appear so at first glance, it is not only associated with costs and additional work, but also great opportunities. Therefore every company should look at the economic advantages of a sustainable business model. Sustainability can be considered in every design phase of a digital business model. In this vein, new digital technologies play a major role as they provide the basis for the above.

Authors

Julien Besemer

Julien Besemer

Consultant

Dr. Falko Walther

Dr. Falko Walther

Manager Business Technology Services

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