Sustainable Business Models: A New Logic for Value Creation

Unlocking the full potential of companies to solve ecological, social, and economic problems requires more than new products. It requires a new logic to how companies create, deliver, and capture value through the development and integration of sustainable business models. Today we introduce the Sustainable Business Model Pattern collection which was developed by Professor Lüdeke-Freund and his colleagues. The collection is part of the business model database of the Smart Business Modeler.

More and more evidence supports that the development and implementation of sustainable business models increase businesses potential of being financially viable and contributing to sustainable development. How? By creating new, social or environmental forms of value, beyond financial gains.

What is a sustainable business model?

A sustainable business model is one that creates significantly more positive effects and/or significantly less negative effects for the natural environment and society through changes in the way a company and its network create, deliver, and capture value. Sustainable business models allow companies to pursue sustainability through the deliberate alignment of their business interests with contributions to the sustainable development of the natural environment and society.

The power of sustainable business models lies within their capacity to better support the description, analysis, management, and communication of a company’s:

The sustainable value proposition to not only its customers but also to all its stakeholders;
Ability to create and deliver this value;
Capacity to capture economic value while maintaining or regenerating natural, social, and economic capital beyond its organizational boundaries.

The Case of Aravind Eye Care System

Take the example of how Aravind Eye Care System has grown to become the largest provider of eye-care services in the world, driven by the vision of restoring the gift of sight to millions poor blind people in India.

Their sustainable value proposition is to offer high-quality eye care and surgery to paying patients (economic-buyer and end-users) and non-paying patients (end-users).
Their ability to create and to deliver this sustainable value proposition is supported by the capacity to specialize on cataract surgery (i.e. efficient operation procedures) and to achieve economies of scale (i.e. a high volume of patients). This has been the secret for Aravind’s ability to realize 60% more eye surgeries than the UK National Health System at one-thousandth of the costs.
Their capacity to capture economic value, while creating value beyond its organizational boundaries, is connected with a freemium pricing strategy. Aravind offers a rural Eye Camp, a Free Hospital, and a Main Hospital. The Free Hospital provides a free-of-cost or at-cost high-quality service to 50%-60% of patients that are brought in from eye camps. The Main Hospital provides different price ranges of rooms, with different levels of facilities and privacy, to 40%-50% of patients that can pay a superior fee for the additional features and functionality.

By providing a basic service or product free of charge to lower entry barriers for customers, while charging a fee for additional features and functionality, Aravind Eye Care Systems is creating significantly more positive effect for society through changes in the way eye care hospitals create, deliver, and capture value.

“If Coca-Cola can sell billions of sodas and McDonald’s can sell billions of burgers, why can’t Aravind sell millions of sight-restoring operations, and, eventually, the belief in human perfection?”

– Dr. Venkataswamy, Founder of Aravind Eye Care System

So this is the Brain Snack of the week. If you like this content, please comment, follow us, and share this post! You can find all 45 patterns to support sustainability-oriented business model innovation on Lüdeke-Freund et al. (2018) insightful research article and on the Smart Business Model Canvas tool.