Sustainable enterprises, to a large extent, are created to redress undesirable imbalances between people, profits and planet --to catalyse positive change around them. Thus, while innovation in traditional business models is... [ view full abstract ]
Sustainable enterprises, to a large extent, are created to redress undesirable imbalances between people, profits and planet --to catalyse positive change around them. Thus, while innovation in traditional business models is primarily focused in maximizing value capture by the organization, in sustainable business models innovations should be geared towards maximizing benefits for society and the environment (Schaltegger et al., 2012). In sum, sustainable enterprises exist to bring about a more fair and balanced distribution of the value created along their value systems. If the distribution of value created by sustainable enterprises were not different from that created by mainstream commercial enterprises, the concept of sustainable enterprise would be mostly devoid of meaning.
To date, few studies have sought to measure the value created by sustainable enterprises. Published work on the subject has been conceptual and exploratory. In this paper, we seek to explore in systematic way how sustainable enterprises go about the creation of value, and how that surplus is appropriated along its value system. Our study is a multiple case study; the sample is composed of five companies that are profitable, dynamic and regarded as having successfully engrained sustainability in their business models. All firms relied entirely on low-income communities as providers of commodities. An in-depth review of the business models of sampled companies was carried out, with a focus on those innovations that impacted value creation and capture along the entire value system.
We assessed value-creation through a value-based approach (Brandenburger and Stuart, 1996), looking at how these value propositions drove a wedge between buyers’ willingness to pay and suppliers' cost of opportunity. Once value is created, the available surplus is then divided between suppliers, producer and buyers. To analyse the distribution of value along the value system, we used gross margins per unit: the ratio between the product’s gross profit (wholesale price – COGS) to wholesale price. Gross profit has been found an appropriate metric to assess value capture in a product-specific level of analysis, as it leaves aside administrative efficiencies (reflected in operating profit) and non-production factors (Dedrick et al., 2010). To put the impact of the innovation in context, we then compared the distribution of value in each of these sustainable enterprises, with their counterparts in mainstream commercial value systems.
Findings suggest a distinct pattern of value-distribution in sampled organizations, one that departs from their mainstream counterparts. The study also identified mechanisms through which sustainable business models created more equitable and environmentally sustainable value systems. The study contributes to theory by developing a set of metrics to measure the creation of value through sustainable innovation in value systems, and to assess how it is distributed between a company, the environment and society.
