The current way of consumption and production is unsustainable in that society is exceeding the earth’s planetary boundaries and creating long-term and irreversible effects on an environmental, social, and economic level. There is a recognized need on all system levels to change the way that we operate. Industry is a key area that requires this attention, as it is largely responsible for the impacts from the production of various societal needs and functions. In particular, the building and construction industry accounts for about 37% of global CO2 emissions. Rapid decarbonization is needed, and technological innovation for electrification, as well as business model innovation towards circularity and sustainability is crucial. With the influence of business on production and the natural environment, it is important to understand how business models can contribute to sustainability transitions. Incumbents have often been perceived as creating barriers towards sustainable transitions, but they also have a large potential to transform industries due to their market power. Previous research has shown that innovative firms are essential for transitions, however, there are not enough insights on how significant business models are for transitions. This paper explores the connections of sustainable business model innovation research with sustainability transitions research and reflects on the ability of incumbents to innovate and contribute to sustainability transitions through insights from a construction equipment manufacturer.
Keywords
Sustainable business model, innovation, incumbent, sustainability transitions, servitization
Introduction
The current way of consumption and production is unsustainable in that society is exceeding the earth’s planetary boundaries and creating long-term and irreversible effects on an environmental, social, and economic level. The system we operate in creates waste and significant emissions through practices that assume infinite resources and production without repercussions. There is a recognized need on all system levels to change the way that we operate.
Industry is a key area that requires this attention, as it is largely responsible for the impacts and consequences from the production of various societal needs and functions. In particular, the building and construction industry accounts for about 37% of global CO2 emissions (UNEP, 2022), with nearly half of the emissions in a building’s lifestyle derived from embodied emissions (Röck et al., 2020), or the emissions that are in-part derived from the construction processes themselves (Ibn-Mohammed et al., 2013). In order to meet global climate targets, rapid decarbonization needs to occur to achieve net-zero emissions for future building construction by 2040 (Röck et al., 2020). Along with the technology to support these ambitions, innovating business models to prioritize circularity and sustainability is crucial. With the influence of business on production and the natural environment, it is important to understand how business models can drive sustainability transitions, as well as how sustainability transitions can create opportunities or barriers to new business models (Aagaard, Lüdeke-Freund and Wells, 2021).
Sustainability transitions are “long-term, multi-dimensional, and fundamental transformation processes through which established socio-technical systems shift to more sustainable modes of production and consumption” (Markard, Raven and Truffer, 2012, p. 956), socio-technical systems being the linkages between “production, diffusion, and use of technology” that are required to meet societal needs (Geels, 2004, p. 900). Business models are part of “the broader question of socio-technical transitions” (P. E. Wells, 2013, p. 42) and should theoretically contribute to societal transformation by changing the way that goods are produced and consumed. Transitions research focuses on the emergence of radical innovations, in which innovations include novel technologies such as renewable energy systems, but also new business models such as circular business models, or changes in social practices such as reducing consumption (Markard, Geels and Raven, 2020). Sustainability transitions are complex as it includes both the challenges of scaling radical innovation from a technology perspective, but also includes the resulting radical changes needed to support it from a societal and user perspective (Turnheim and Sovacool, 2020).
Scaling radical innovations typically requires the development of new kinds of business models (van Waes et al., 2018). While the role of technological innovation is important for sustainability transitions, it is not sufficient alone as systemic shifts also require radical and non-technological innovation to change existing ways of production and consumption (Markard, Raven and Truffer, 2012; Bidmon and Knab, 2018). The process of transitioning into or towards a sustainable business model (SBM) is termed as sustainable business model innovation (SBMI), and is accomplished through the implementation of new business models or changing existing ones “to advance system-level sustainability” (Laukkanen et al., 2021, p. 98). SBMI, or the conceptualization and implementation of new business models that aim to adopt characteristics that foster sustainability through positive development or reduction of negative impacts (Geissdoerfer, Vladimirova and Evans, 2018) can be a non-technological innovation important for sustainability transitions (P. E. Wells, 2013). Derks et al. (2022) note that “both sustainability transition and the SBM literature focus primarily on how an individual organization can change toward sustainability and how this might contribute to a sustainability transition, but lack a description of how SBMs can actually reshape an entire system toward sustainability, creating a transition” (p. 2). It is questionable whether SBMs contribute to sustainability transitions, and furthermore, the role they may play in such transitions (ie. do they have an impact or provide false illusions of transitions). It is useful to explore SBMs’ role as a process in sustainability transitions, not as an end or outcome itself (Laukkanen et al., 2021), and more research is needed between business model and sustainability transition studies (Boons and Lüdeke-Freund, 2013; Bidmon and Knab, 2018; Köhler et al., 2019; Aagaard, Lüdeke-Freund and Wells, 2021).
Understanding BMI behaviors and strategies in particular for sustainability transitions is largely missing, especially for multi-niche and multi-regime interactions (Ruggiero et al., 2021). Previous research has shown that innovative firms are essential for transitions, however, there are not enough insights on how significant business models are for transitions (Boons and Lüdeke-Freund, 2013). Research in transitions theory highlights the need to focus on organizational theory and business models (P. Wells, 2013; Bidmon and Knab, 2018) since transitions theory requires “more detailed causal mechanisms”, and business model research requires “more structured contextual explanation” (P. E. Wells, 2013, p. 42). In alignment with these needs, Köhler et al. (2019) suggest the exploration of BMI abilities to help facilitate sustainability transitions in its boundary-spanning activities that go beyond the scope of the firm. Similarly, Schaltegger et al. (2022) state that for systemic change to happen, transformation is needed at “process, product, business model and organizational levels” (p.1).
BMI for incumbents is particularly interesting for sustainability transitions research, as there is potential for incumbents to be “a progressive force for sustainability transitions” for scale-intensive industries due to their market power (Hellsmark and Hansen, 2020, p. 1). Incumbents are organizations in mature fields (Apajalahti, Temmes and Lempiälä, 2018) with a particular status and power over key resources and processes (Fligstein, 2013; Turnheim and Sovacool, 2020). Turnheim and Sovacool (2020) call for further exploration of the roles of incumbents in transition processes and to research how different conceptualizations of incumbents “can lead to novel insights on the destabilization, phase-out and transformation of unsustainable socio-technical systems” (p. 183), and to identify different types of incumbency roles, specifying the factors that contribute to transitions. Research has often focused on emerging business models rather than established, with potential for future research to focus on the role of incumbent firms and their business models in “how they create positive feedbacks with dominant socio-technical regimes” (Bolton and Hannon, 2016, p. 1740).
This paper explores the connections of sustainable business model innovation research with sustainability transitions research and reflects on the ability of incumbents to innovate and contribute to sustainability transitions. The research, therefore, aims to explore the questions:
What is the role of business model innovation in sustainability transitions?
How can incumbent firms contribute to sustainability transitions through business model innovation?
This paper first reviews the main characteristics of socio-technical systems to help position business model research within it. This is followed by the definition and clarification of the business model and BMI concepts and their role in sustainability transitions. The behaviors, barriers, and advantages of incumbent firms for sustainability transitions are then described. Lastly, this paper combines the understandings of the roles of BMI and the conceptualizations of incumbents to describe an optimistic conceptualization of the role of incumbents to catalyze sustainability transitions through the application of case insights of a construction equipment manufacturer.
Methodological approach
This paper conducted a literature review to analyze the intersection of three different areas: sustainability transitions, sustainable business models, and incumbent business and business strategies. Literature and concepts were taken from sustainability transitions research with a focus on socio-technical (ST) systems, and incumbent business research to provide a new research lens for sustainable business model innovation in incumbent companies.
A literature search and analysis was initiated with thirty-one papers provided in a doctoral-level course: Innovation and Sustainability Transitions in August 2022 at the Western Norway University of Applied Sciences. Through a combination of bread crumbing and pearl growing (Jesson, Lacey and Matheson, 2011) with the intention of finding an intersection of the three areas, several other sources were identified. To compliment this literature, various combination of keyword search terms including “sustainable business model*”, “incumbent*”, and “sustainability transition*” were searched in Scopus and the Lund University index that includes several different databases.
As a conceptual paper, this research involves “the assimilation and combination of evidence in the form of previously developed concepts and theories”(Jaakkola, 2020, p. 19). It utilizes concepts from different literature streams through theory synthesis and adaptation (Jaakkola, 2020) where the multi-level perspective theory from ST systems literature (Geels, 2002), along with a co-evolution framework (Foxon, 2011) are used as method theories (Jaakkola, 2020) or tools to provide a new lens for SBMI in incumbent companies. SBMI is considered a domain theory, or “ a particular set of knowledge on a substantive topic area situated in a field or domain” (Lukka and Vinnari, 2014, p. 1309). Method theories are used as “a meta-level conceptual system” to study aspects in the domain theory (Lukka and Vinnari, 2014, p. 1309).
The role of business model innovation for sustainability transitions is answered in part through the exploration of the placement of business models within sustainability transitions literature and the socio-technical system with a summary of previously defined roles of business models. Particular roles are expanded upon through the description of innovation processes used in SBMI. This is further expanded on through a description of an empirical example of an incumbent, answering how incumbent firms contribute to sustainability transitions through a clarification and specification of incumbent business model innovation and exploration of its influence on subsystems in the socio-technical regime. The incumbent company was selected to be included in the paper by purposeful sampling (Patton, 2002) of a construction equipment manufacturer with headquarters in Sweden. It is an international company nearly two centuries old, currently with manufacturing plants in seven countries, and roughly 16,000 employees. The empirical insights are derived from interviews in a longitudinal case study, where the observed phenomena are used to illustrate an example of the conceptual framework developed by the merging of the different literature steams.
Connecting socio-technical system perspectives with business model innovation
It is difficult to connect business model theory with transitions theories due to different philosophical transitions, in which business model theory is typically short-term focused “without real regard for the wider setting within which they operate” and with transitions theory having a long-term perspective with often historical insights and the ambitions to be used more as a policy tool (P. E. Wells, 2013, p. 37). However, this is changing as longer strategic perspectives are needed by industry for business model innovation in response to global megatrends such as accelerating technological innovation, resource scarcity, and climate change (Retief et al., 2016). This section therefore aims to connect the relevance of transitions theory perspectives with business model innovation.
This paper utilizes the socio-technical (ST) system framework to position business model innovation due to its holistic system’s perspective for innovation, acknowledgment of various institutional regimes and perspectives, need for learning in the uptake of innovation, and inclusion of technological and non-technological innovation. Coenen and López (2010) summarize the framing of ST systems to “encompass production, diffusion and use of technology in relation to so-called societal functions (e.g. transport, communication, nutrition)”, in which the systems are made up of organizations and “artefacts, knowledge, capital, labour, cultural meaning” (p. 1152). While the conceptualization of ST systems and its descriptive boundaries have been criticized to lack clarity in the differentiation of the levels and terms (Markard and Truffer, 2008; Coenen and Díaz López, 2010), this paper utilizes it as it finds the general concepts useful to position the role of BMI and incumbents.
In comparison to other system perspectives and frameworks, the ST system framework is quite broad in that it is based on societal functions, involves multiple industrial sectors and technologies, focuses on both technological and non-technological innovation, and calls for both radical and incremental innovation (Geels, 2004; Coenen and Díaz López, 2010). Since ST systems are geographically bounded (Coenen and Díaz López, 2010), the ST system perspective is also relevant to the business model perspective since the uptake of SBMs are often restricted by geographic boundaries due to various contextual factors and consumer practices (Kjaer et al., 2016; Johnson and Plepys, 2021).
The ST system framework utilizes a multi-level perspective (MLP), which includes the socio-technical landscape, the regimes, and niches (Geels, 2002). The socio-technical landscape includes various factors and “deep structural trends” as well as “technology-external actors” (Geels, 2002, p. 1260) in which landscapes extend past the ability for actors to influence them, as they include “material environments, shared cultural beliefs, symbols and values” that are hard to diverge from (Geels, 2004, p. 913). Within these landscapes are socio-technical regimes that form the embedded structure and rules of the ST system by interlinking various rules of different regimes (Geels, 2004). This is where incremental innovation happens, while radical innovations happen in niches (Geels, 2004). Niches are safe spaces to deviate from the rules of the regime, for the development of learning processes, and for the building of social networks to support innovation (Geels, 2002, 2004). Internal niche processes that foster innovation including learning and network building (Geels, 2004), which align with processes needed for BMI (Teece, 2010, 2017; Greco, Grimaldi and Cricelli, 2020).
The ST innovation system perspective is comprehensive in acknowledging various institutional perspectives that shape innovation-- from technological and product regimes, science, policy, socio-cultural, and users and market network regimes (Geels, 2004). This holistic perspective of external drivers and barriers for innovation is also important for BMI, as the impact of business models is dependent on various institutional barriers, such as policy regulation and standards, for example forcing carbon-neutral goals and disclosure of all carbon emissions (in the supply chain and outside of the firms’ direct control), as well as current technological demand and product functions, customer perspectives, and more (Bocken and Geradts, 2020). The comprehensive perspective of the ST systems framework matches the SBMI perspective since new business models such as circular business models and product-service systems also require a broad network perspective and requires the inclusion of actors, capabilities, resources, and knowledge beyond the firm (Lewandowski, 2016; Brown, Bocken and Balkenende, 2018). Furthermore, the acknowledgment of learning as part of innovation uptake in the ST system perspective is an important connection to BMI research, as organizational learning is key for resource and competence management towards new types of BMs such as circular business models (Johnson, 2022). The ST system perspective states that consumption is more than purchasing new technology since new technologies require new “practices, organizations and routines” that require adjustment and learning to fit into particular routines (Geels, 2004, p. 902). This adjustment and learning for routines can be shaped by the BMI of existing firms (Achtenhagen, Melin and Naldi, 2013; Roome and Louche, 2016).
Lastly, the ST system framework was found to be a relevant connection to BMI due to its acknowledgment and emphasis on non-technological innovation. Innovation can be defined as “an outcome of the ongoing alignment of technology and the user environment” which calls for “a more process-oriented understanding of the role of knowledge creation, exchange, and use” (Coenen and Díaz López, 2010, p. 1154). Non-technological innovation plays a large role in transitions, as it can support new technology, or alter the activities or services that affect how society produces and consumes. Technological innovation usually includes new technical knowledge, while non-technological innovations “may solely rest on the use of new business methods, new organizational concepts or other immaterial ways of changing business activities” (Schmidt and Rammer, 2007, p. 4). Technological innovation typically includes product and process innovation, while non-technological innovation is related to organizational innovation that includes management practice, production approaches, organizational structures, and external relations (Mothe and Thi, 2010). Engwall et al. (2021) notes that business model innovation can be more of a challenge for disruptive technology than new technology itself, meaning that it is the uptake of a new technology in a business model that supports sustainability transitions.
In connecting business models with sustainability transitions, Beers et al. (2021) suggests to examine the role of a business model in facilitating systemic process of change towards sustainability where the business model does not need to be “radically different” and that “the sustainability potential of new business models should be assessed at the level of the system and not at the level of the business itself” (p. 35). This means examination of the business model at the level of the system looking at how it contributes towards processual and system changes, rather than the direct impacts themselves.
The role(s) of business models in sustainability transitions
Business models but can be understood as a business’s organizational architecture (Teece, 2010) that explains how it creates and captures values (Osterwalder and Pigneur, 2010) through its activity systems (Zott, Amit and Massa, 2011). The term SBM, therefore, implies business models that either “incorporate concepts, principles, or goals that aim at sustainability, or integrate sustainability into their value proposition, value creation and delivery activities, and/or value capture mechanisms” (Geissdoerfer, Vladimirova and Evans, 2018, p. 403). Taking a step further in linking the idea of sustainable business models to sustainable transitions or society, an SBM connects company-level sustainability to system-level by incorporating sustainability principles in the way it provides or creates value for all stakeholders (Laukkanen et al., 2021, p. 98).
BMI is necessary to transition towards SBMs, for example in established companies or incumbents with a business-as-usual model. Geissdoerfer et al. (2018) describes different ways for companies to innovate, they can create additional business models to the ones they still maintain, acquire new business models, or transform from one type of business model to another—where the innovation can affect the entirety of a business model, individual elements, or a combination of elements of the way it captures, creates, and delivers value. Innovations can for example be “a process, product or service” that either fits within the existing business model, fits only to a certain degree, or not at all (Boons and Lüdeke-Freund, 2013, p. 13). SBMI, such as BMI for servitization or circularity requires many different variables from a linear production system, ie. reverse logistics, the quantity and timing of the return of resources, customer education and acceptance, and more—requiring a “systematic and transdisciplinary view” (Pieroni, McAloone and Pigosso, 2019, p. 201).
Kallio et al. (2020) describe new business models as a way “to reconfigure institutionalized market beliefs and rules, as well as market expectations” (p. 2). In positioning the role of business models with transition theories, Bidmon and Knab (2018) have defined three different roles of business models for societal transitions. While the first perspective defines business models as part of the socio-technical regime that reinforces dynamic stability, the other two roles of business models are described as having potential to contribute to sustainability transitions. This paper has rephrased these roles as supporters of status quo, intermediates, and innovators, and are summarized as:
1. Supporters of status quo- BMs are part of the socio-technical regime where they reinforce and maintain it, and may act as barriers to innovation. BMs reproduce the rules of the regime and reinforce current resource structures, are connected across industries and other regime actors, and are aligned to the current system’s way of operation (Bidmon and Knab, 2018).
2. Intermediates- BMs that can commercialize technological innovation as they “act as intermediates between the technological niche and the socio-technical regime and facilitate the stabilization and breakthrough of novel technologies by substantially contributing to these sub-processes” (Bidmon and Knab, 2018, p. 909). They do so by supporting the vision of the new technology and frame its value in a way that creates stability of the technology “because they support the convergence of shared rules and structures” (Bidmon and Knab, 2018, p. 909).
3. Innovators- BMs that act as “non-technological niche innovation” and can be considered at “a higher level of stability than a novel technology” as they can be developed independently of technological innovation and challenge dominant regime logic by redefining the way that value is captured and created (Bidmon and Knab, 2018, p. 910).
The plurality of incumbent potential for sustainability transitions
Due to various institutional and regime barriers that incumbents partially uphold, the focus on incumbents and their connection to BMI is important since incumbent firms need to “challenge their existing business architecture, develop new offerings, adapt their value chain structure, establish new revenue models and modify their resource base” (Santa-Maria, Vermeulen and Baumgartner, 2021, p. 2). This section first defines incumbents and then describes the challenges and opportunities of their engagement in innovation and sustainability transitions. It then summarizes the various roles and behaviors that incumbents have been found to have in transitions.
Incumbents are ‘powerful and resourceful’ organizations (Apajalahti, Temmes and Lempiälä, 2018) that have “a) privileged agency over the current workings and fate of established systems, and b) exposure to potential overthrow or defeat, but c) may also be leveraged to influence and shape transition efforts” (Turnheim and Sovacool, 2020, p. 183). Understandings of the role of incumbents in sustainability transitions are unclear, as they have been shown to both create forms of resistance and acted as barriers to radical innovation and transitions, as well as been at the forefront to develop new technologies and businesses to respond to sustainability challenges (Magnusson and Werner, 2022).
Incumbents typically face several barriers that contribute to their reluctance to engage in radical innovation, being they have perceived lower incentives to introduce radical innovations due to their profits being tied to current technology, the risk of cannibalization, organizational filters that exclude activities outside of current core operations and that leave blind spots to innovation (Chandy and Tellis, 2000). Generally, the ability of incumbents to mobilize resources to support new technologies is restricted by organizational routines that are built around existing production systems (Hansen and Coenen, 2017). Furthermore, they often struggle to develop knowledge and competences outside of their core technological area, have no experimentation space within the organization to participate in entrepreneurial activities, and lack access to new perspectives and resources (Dewald and Achternbosch, 2016). Incumbents often “prevent the successful emergence of new business models and institutional structures” that would enable innovation (Turnheim and Sovacool, 2020, p. 181).
Conversely, incumbents also have many opportunities to engage in radical innovation, for example, due to their knowledge of customers, previous connections to customers to appease risk-related concerns of new products or innovations, their market power and access to various distribution channels, and large size that can provide dynamic organizational environments and stronger technological capabilities (Chandy and Tellis, 2000). They have also been observed to “contribute to niche-regime interactions” and “regime fragmentation by pursuing divergent strategies” (Turnheim and Sovacool, 2020, p. 181). For example, they have had various industry responses that include additional or new business models catered to sustainability. Wainstein and Bumpus (2016) also note that incumbents are being pushed towards new BMs that often involve more customer participation and that "present windows of opportunity to destabilize the rigid foundations of the current carbon lock-in and accelerate the inertia towards a low carbon power system” (p. 573). However, these may sometimes complement rather than substitute unsustainable business-as-usual (Magnusson and Werner, 2022). Frishammar and Parida (2019), however, state that even incumbents with a gradual adoption of sustainability principles and with weak sustainability propositions can still create major positive effects since they “operate in mass markets” (p. 25). Stucki et al. (2023) found that companies that “challenge the frontiers while serving as role models for other companies” (p. 11) were often companies with similar characteristics as incumbents, that is, large firms “that face non-price competition, successfully commercialize new products, and have the financial resources” to invest in sustainable innovation (p. 12). Incumbent strategies have varied across organizational fields “according to differences in industry settings (e.g. kinds of product, market structure, supply chains, institutional environment), intrinsic actor properties (e.g. capabilities, strategies, boundary management), and kinds of challenges (e.g. innovation type, scope, maturity)” (Turnheim and Sovacool, 2020, p. 182). Hansen and Coenen (2017) found various factors that explain the success of incumbents in new fields—if incumbents assign innovation to new departments, increase and develop competences outside of traditional knowledge areas of its products and processes, increase knowledge of new markets, and develop upstream component knowledge. The potential of incumbents’ proactive involvement can “significantly accelerate and orient transition dynamics” (Turnheim and Sovacool, 2020, p. 183) as they can mobilize resources to acquire or purchase innovative entrants, diversify their portfolios, and influence new standards.
Magnusson and Werner (2022) identified and conceptualized four roles of incumbents, stating incumbents are not necessarily attributed to one, but can play different roles at different times or even at the same. This is noted also by Turnheim and Sovacool (2020) that “the behaviors and strategies of incumbents are likely to change over time as part of internal dynamics (e.g. organizational learning)” as well as due to changes in transition contexts (p. 182). Van Mossel et al. (2018) identified four typical behaviors of incumbents related to niches: they can be the first to enter a niche out of necessity or to exploit an opportunity, follow into niches where they advance the transition, remain inert in which an incumbent does not specifically change its behavior during a transition, and delay or prevent transitions. Magnusson and Werner’s (2022) incumbent conceptualizations match with such behaviors as they state that incumbents can both uphold the regime through conservative and conforming actions, as well as through self-reinforcing mechanisms and lock-ins created from organizational inertia. On the other side, incumbents can engage in innovative practices with particular capabilities, and lastly can be ‘networked change agents’ which entails taking “leading roles in emerging communities with the aim of driving transformative processes” (p. 8). Supporting the idea of networked actors, Kallio et al. (2020) also describe incumbents as “hybrid actors creating provisional linkages (termed anchoring) between the innovative solutions created in niches by new entrants, and the dominant logic of the incumbent regime” (p. 2). Essentially, incumbents can bridge sustainable alternatives and the actors and practices of the current regime “by adopting and adapting niche innovations into the regime” (Kallio et al., 2020, p. 2). While these understandings are not identical, they highlight the plurality of incumbent behaviors in both advancing or hindering sustainability transitions, and with different motives for their behaviors.
The potential of incumbent BMI to contribute to sustainability transitions
Businesses can contribute to sustainability transitions by changing their company strategies or developing new business models, as well as by creating new ways to interact with the market, value chains, policies, and consumer models (Aagaard, Lüdeke-Freund and Wells, 2021). Business models have the potential to disrupt entire industries due to their connection with various actors, their position in the value chain, and the power to introduce new technologies to the market (Bidmon and Knab, 2018), and BMI can support technological and organizational innovations amongst broader actors and networks (Zott, Amit and Massa, 2011; Nußholz, 2017).
The idea that innovation should include product, process, and organizational perspectives for market success (Schmidt and Rammer, 2007; Mothe and Thi, 2010) is important with a BMI perspective, as it is often not new technologies that are being developed, but new ways to organize the business and make profits with reduced environmental and social harm by changing the perspective and role of the product connected to profit. For example, with product-service systems and changing the business offering away from product-oriented towards use or result-oriented, where services are the focus of the sale to provide a certain function or outcome (Tukker, 2004). Business models are important for sustainability transitions beyond experimentation with technological innovation, but also to experiment with societal stakeholders to include social transformation to create new type of value and change stakeholder relationships (Schaltegger, Loorbach and Hörisch, 2022). Wainstein and Bumpus (2016) describe BMs as a way for technologies to join the market, and that BMI is acknowledged as a significant vehicle for market disruption by restructuring the relationship between products and customers and shifting the value proposition. Figure 1 depicts SBMI as the nexus between technological and non-technological innovation for sustainable transformations.
Figure 1. Example of BMI for an incumbent contributing to sustainability transitions
To meet sustainability and climate goals, radical and massive change to current production and consumption systems is needed. While this research acknowledges the many barriers for incumbents to engage in radical innovation, as well as the potential role they may play to delay transitions, this paper focuses on positive conceptualizations of incumbents that encourage an optimistic perspective on the potential for wide-scale change due to their market power and access to resources. While specific details of a case study incumbent firm are out of scope for this paper, it utilizes insights from incumbent firms in the construction equipment industry to illustrate the potential of incumbents as networked change agents in sustainability transitions.
This research expands the conceptualization of ‘networked change agents’ by Magnusson and Werner (2022) through integrating two of the incumbent roles defined by Bidmon and Knab (2018), where incumbents can fluctuate or simultaneously uphold roles as intermediates and innovators. This implies both commercializing technological innovation, and developing niche innovation through new types of business models that challenge the existing linear business models (see Figure 2). This description of incumbents is also reinforced by research by Apajalahti et al. (2018), that found that incumbents shape new technological fields though creating credibility and fostering collaboration. Incumbents create legitimacy of a new innovation through the funding of research and launching new business models even if there is low demand. Furthermore, they foster collaboration in the creation of new partnerships to test new technologies and expand business solutions, acknowledging the need for other types of actors outside of the market (Apajalahti, Temmes and Lempiälä, 2018).
In the case of the construction equipment manufacturer, the firm is working to scale the spread of electromobility solutions by applying, developing, and scaling electric engines in their product portfolio to substitute and replace fossil-fuel engine machinery. Simultaneously, they are experimenting with new business models surrounding the scaling of this technological innovation by testing service-based business models where the function of the machinery is the focus, such as in equipment-as-a-service. Essentially needing to move away from the sales of machinery and towards the sale of motion and functional services. This type of non-technological innovation of the business model is needed to support the success of the technological innovation, as well as the success of the company as it has to change its fossil-fuel dependent engines, revenue streams, and its competences. From a transitions perspective, this promotes the logic of decoupling the sale of products and resource-use from profits. It is important that incumbents engaged in BMI not only engage in technological innovation, but also non-technological to ensure the spread of the new or more sustainable innovation.
Figure 2 illustrates a case example of an incumbent for sustainability transitions taking up technological and non-technological niche innovations to create new business models around electromobility, and spreading it across the socio-technical regime to move towards an optimistic landscape of a carbon-neutral, sustainability driven, non-linear consumption society with the prioritization of all stakeholder interests. Incumbent firms such as these combine and utilize new technological innovation, such as electrification of heavy industrial equipment and new charging solutions, using their market power and geographical spread to help commercialize electrified machinery. Simultaneously, they are developing new ways to create value by innovating and changing the relationships with their customers, for example through the servitization of business models. The influence of SBMI in various areas is described further by subsystems, as described in the next section.
Figure 2. The role of incumbents and BMI in sustainability transitions utilizing insights from case example in the construction equipment industry and the uptake of electromobility solutions (Source: Author, based on work by Geels (2002) and Bidmon and Knab (2018))
Exploring subsystems to understand the transformative potential of SBMI
The potential of incumbent BMI for sustainability transitions has been highlighted based on their boundary-spanning nature in which collaboration amongst many actors with similar visions and rules is required to create foundations for a new regime (Bidmon and Knab, 2018; Ruggiero et al., 2021). The implications of technological and non-technological innovation that make up BMI can also be understood further through subsystems of interactions in the socio-technical system.
Business models can both influence and be influenced by other subsystems, which include user practices, ecosystems, institutions, and technologies (Hannon, Foxon and Gale, 2013; Hall et al., 2022). These sub-systems have been described in a coevolutionary framework by Foxon (2011) to help “analyze socio-technical change for a transition to a low carbon economy” as the systems can influence each other (p. 2262). A coevolutionary approach “seeks to identify causal interactions between evolving systems” to understand change (Foxon, 2011, p. 2262), and emphasizes that subsystem changes influence each other, but do not necessarily determine changes in each other (Kemp, Loorbach and Rotmans, 2007).
A business model is embedded in the co-evolutionary framework between the sub-systems as described by Hannon et al. (2013) and Hall et al. (2022) and shown in Figure 3. The transformative potential of BMs can be understood by their influence on subsystems in the socio-technical system.
The business model is embedded in these subsystems where it both has influence in how the systems co-evolve, and is influenced by these systems. As this paper focuses on the role of business models and SBMI for sustainability transitions, this section focuses only on aspects that SBMI can influence in the transition.
Figure 3. BMI at the intersection of various subsystems of the socio-technical system (adapted from Hannon et al. (2013) and Foxon (2011))
Utilizing insights from the construction equipment manufacturer example, the potential of SBMI for e-mobility to contribute to sustainability transitions can be understood through their impact on the following subsystems:
Institutions: Institutions in this paper refers to “modes of organizing work, markets, laws and forms of collective action” (Foxon, 2011, p. 2261). The increased market share of electric machinery and electrified construction sites (technological innovation) requires infrastructural changes as it increases the demand for energy and also requires new structures to bring stable energy sources to remote work-sites. The increased demand for a technological system to support the scale of this tech can help to legitimize and give credibility to the technology which in this case help to meet global climate goals to reduce emissions rapidly. SBMI places increased demands on regional energy infrastructure and grid flexibility, evoking change in how energy must be created, stored, and shared. Electrified equipment also requires changes to how construction sites are developed and planned, linking to the needs of new end-user practices and values. Furthermore, value through service business models (non-technological innovation) changes user acceptance for non-ownership of goods in the case of direct consumers or construction companies, as value is rather placed in the result or function of machinery rather than the equipment itself.
Technological system: As the scaling of electric machinery (technological innovation) requires new energy infrastructures as described in the previous section, it also requires new technologies to support the increased battery demand in electrified systems. Since batteries are costly, require scarce and critical raw materials, and have limited productive lifespans—new technologies are critical to mitigate the impact from their material extraction and production, as well as technologies to increase the end-of-life opportunities once the batteries are no longer efficient, and later no longer functional. SBMI in incumbents stimulates large demand for these new technologies due to their large presence on the market. Digital connectivity (technological innovation) and productivity services offered as part of new business models (non-technological innovation) to support the smart usage of electric machinery requires an understanding of the customer’s needs in terms of the type of equipment needed, energy use required, site layout, operation time, and more—therefore demanding the company to change the ways they are currently interacting with their customers and perhaps building new actor relationships.
User practices: Electrified equipment (technological innovation) creates safer, emission-free usage and quieter working conditions for operators on site, and changes the way that people are working on construction sites. This innovation also requires new routines as operators must plan for charging time of their equipment to optimize construction-site productivity, but productivity services (non-technological innovation) help operators to plan this. These productivity services as a result of the SBMI have the potential to guide end-users and operators to be more efficient in their day, or create more opportunities when to plan breaks. However, the benefits to customers for the cost of investment is not fully evident, requiring the company to stimulate demand for the innovation. The company has to look further down the demand side of the value chain to stimulate more urgent demand from the end customer (ie. real estate company) to demand that the direct customer (construction company) purchase electric machinery. In this sense the company has to engage in work to change perspectives about the need and importance for new technology beyond its relationships with its direct customers. It also has to create new forms of acceptance of different contracts implying different responsibilities for risk, and trust between the company and dealers, dealers with customers, and the company with customers. The influence the company has in the demand side of the value chain also creates ripple effects for other demands relating to electrification, emission-free functionality, and sustainability in the market.
Ecosystems: Electrified equipment (technological innovation) offers quieter worksites with no direct emissions. This innovation at the scale and distribution of incumbents shows potential for significant transformation. While the SBMI offers the potential to reduce emissions and contribute to science-based targets, there are other implications for the impacts of batteries on ecosystems in terms of their extraction and production. Non-technological business model innovation such as batteries-as-a-service as an example provides a partial solution as it ensures that firms optimize the life of the battery and end-of-life care, also showing the potential to transform how impactful materials can be handled in sustainability transitions.
The influence of sustainable business model innovation has different implications depending on various contextual factors, but is exemplified here in changing the working conditions for many in this global industry, with further implications for those outside of the industry as it will scale the implementation of electromobility and help in reducing global emissions. SBMI influence on the subsystems also imply the need for collaboration with various other societal actors, leading to changes beyond the market. While SBMI is influential on other actors, it is also dependent on various power structures and relations (Avelino and Wittmayer, 2016).
Conclusions and Future Research
It is important to position the relevance of the ST system with business model research to broaden the scope of business model management and research to expand perspectives outside of firms’ competitive goals, and position them as having a broader purpose for a sustainable future. This paper aimed to position and conceptualize the role of incumbent companies to shift the regime through technological and non-technological innovation, such as with the example of the construction equipment manufacturers moving away from carbon-dependent machinery and towards more sustainable solutions.
While this conceptualization of incumbents for sustainability transitions is limited, this paper has helped provide justification and rationale to support BMI for incumbents to catalyze sustainability transitions. However, more research needs to be conducted between BMI for incumbents and sustainability transitions. Incumbents are often portrayed as one unit, but there is little information on tension and power struggles within incumbents in transition studies, pointing toward a need to “go beyond the description of the firm as a coherent unit” (Magnusson and Werner, 2022, p. 10). As BMI can occur in the content (activities), the structure (linkages or sequences of activities), as well as governance (the control over an activity or activity system between a company and network) (Amit and Zott, 2001; Zott, Amit and Goergen, 2017), it is important to examine these micro-dynamics within the firm to asses organizational inertia and other internal tensions that impact the internal ability of incumbents to engage in sustainable BMI. This paper has highlighted the importance of understanding a BM as a unit of analysis, for example in how business models can be understood so that can be scaled to create value for society and support sustainability transitions based on technological and non-technological innovations, but further research is needed to access perspectives within the BM in terms of key activities and actors that create the innovation processes and support micro-foundations and processes to understand why some niche innovations fail due to inter and intra-firm barriers (Sarasini and Linder, 2018).
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