Creating shared value requires shared valuation
The key question for every business model is whether the initiative is viable and sustainable over time. We measure that through a conventional cost-benefit analysis, and we do that even in what are considered sustainable business models. Is that the way to go, and does it reflect all values that are created? Is it at all possible to develop a sustainable business when not all implicit values are valued? The answer, of course, is no, but… how can we do it differently?
Assess your business model on more than just money
In a traditional approach to a business case, it is primarily about mapping out all costs and benefits, and then determining whether the initiative is viable. The result of this approach is a closed model: There can be only one ultimate comparison. Furthermore, the model is limited to the company itself — value that is created for others is not taken into account.
Therefore, it is time for an open model, in which everyone in the ecosystem of a company should be able to derive value from their participation in the ecosystem in one way or another. The model must be not only open but dynamic, because there is not such a thing as a ‘universal value model.’ Instead, one can look at all of the value that is being generated for the various parties in the business ecosystem.
Extended profit and loss account
Traditional business models look, bottom line, at costs and revenues expressed in money. This can also be done differently by mapping all the other value that has been created. Existing systems to report on sustainability or to measure environmental or social impact, such as ISO 26000 or LCA, can be used to make these types of value explicit. A sample list of possible value types could look like this:
The profit and loss account can be extended by those types of value. In a way, that’s money for advanced users.
Broaden the costs and revenues — define the scope of your ecosystem
There is more to be considered. As sustainable business models demand making the value created for others in the ecosystem tangible, you can extend your ecosystem infinitely. That would make it practically impossible to valuate the value created. Therefore, it’s very important to determine for whom in your ecosystem you want to create value. In other words: define the scope of your value creation system.
You can put together the profit and loss account for all affected parties. And what are costs for one, will be returns for another.
True profit as a result
By accounting for not only ecological and social values, but also valuing them explicitly — for others, as well as for yourself — you determine the “true profit” of your business model. This does justice to all the value that is created. And what that is, you decide together with the parties involved in your ecosystem and determined in your scope. A ‘true’ invoice would then look something like this:
Of course, this is only a first step and many more have to be taken to make this a proven model. The first step is set in the book, New Business Models: Collaborating to Create Value, in which I co-authored the part about an alternative to the traditional P & L. Unfortunately, this book is at this time only available in Dutch. Therefore, I will be delighted to share more insights and learnings on sustainable business models in future articles.
This article is originally published by Sustainable Brands on Thursday, December 11th 2014.
Sustainability is all about impact. Positive impact makes you meaningful. But first you have to know where you are making an impact and where you can create shared value. That’s where PRé comes in. Pinpointing your impact is an essential starting point for taking joint action with people and organisations in your ecosystem. The combination of sustainability and social business can make a real change in the way we do business.