Table of Contents
- 1 Principles of Elements for a sustainable business model:
- 2 Pillars of Sustainability
- 3 Factors to consider when designing a business model
Elements for a sustainable business model: The majority of stakeholders or business owners don’t feel they have made enough. No matter the figures they have made, they will still be clamoring for more. The clearest way to grow profit is to grow your business. This then leads us to a sustainable business model.
Companies (whether big or small) have prioritized the word sustainability as a key factor. For a company to be on the front foot, its sustainability must be highly considered. In a world where the natural environment is finding it hard to accommodate more industrial growth. There is an increasing fear that the world might face drastic natural repercussions from man’s activities to satisfy his needs.
With our natural resources extracted faster than they can form, there is an urgent need for sustainability.
Principles of Elements for a sustainable business model:
There are five principles of a sustainable business model. Business owners and stakeholders are expected to consider both the long-term and short-term goals of their companies.
The first principle of a sustainable business model is diversity. Diversity means the condition of having or being formulated by different elements. A company needs diverse people, resources, investments, and plans. Companies should no longer stick to one direction for resources, investments, people, and plans, opening the company to a greater risk of failure. People with the same mindset will only think in the same way, so people from different backgrounds and schools of thought are incorporated. What happens if the main resources a company uses become unavailable? Diversity is needed for sustainability.
Another important principle is modularity. It means structure and formation with standard values for independence and flexibility. Firms should learn to keep functions separate rather than having a joint operation around the company. This helps to reduce the risk of shock from one department in the company. Although, a joint operation facilitates knowledge flow. It’s therefore imperative for managers or stakeholders to find a means of bringing departments into sharing ideas while they work independently.
An ambitious firm must be open. They must know what is going on outside their company space. A lot of things are happening outside the company which could be of advantage to the company. Companies should be able to sense issues before they are affected by them. They should constantly monitor the external environment and forecast future occurrences. By doing this, they are well prepared for the future. The link between the company and outside businesses should be absorptive and pliable.
Slack resources are resources that are lacking in completeness or perfection. Often, slack resources are seen as wasteful and costly resources. However, innovation and adaptation require creativity and change of direction. Companies should find means of navigating through storms or accommodating ideas. Both in resources and capabilities, slack resources are a substantial part of a sustainable business model. It helps when the company is experiencing an unusual low in financial terms.
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Understanding the rhythms of business and its environment helps to reach an equilibrium. The goal of the majority of the companies is to optimize performance and get more from less. At times, this puts pressure on the company which leads to repeated processes. A sustainable business model is not particular about instant successes but long-term all-around success.
Looking critically at these principles, they are interwoven. They work together and might even perform the same purpose in some cases. Diversity and modularity can work together in some cases. Segmenting different departments using diversity as a criterion will help while accounting for the pros and cons.
Pillars of Sustainability
Elements for a sustainable business model: Sustainability, as we all know, is meeting the present needs without compromising the ability of the future generations to meet theirs. How can we manage our current resources to cater to our present needs and not affect the coming generations? There has been lots of speculation about some natural resources becoming out of reach soon. Mainly because of the rate of extraction and usage to meet our present needs. What’s the fate of the coming generations with a different idea about the use of these resources?
There are three main pillars of sustainability: Economic, Environmental, and Social pillars – formally referred to as people, planet, and profits, respectively.
What’s the usefulness of a business model without profit? The main reason for setting up a business model is profit. Aside from meeting the needs of your customers, profit is a priority. Meeting your customer’s needs is a strong position, but you can’t do that by making a profit or just earning exactly what you put into the business. No profit, No loss; the business is dead on arrival. However, making a profit at all costs is not what the pillar is all about. Business owners and stakeholders should maintain proper governance and risk management.
Extorting customers is not the idea. Meeting your customers’ needs and raking a reasonable amount of profits is beneficial. Monitoring the market structure and your competitors might be an ideal way.
This pillar often gets the most attention. When thinking about solutions to problems and satisfying human needs, the effects on the planet and environment should be considered. Lessening the negative impacts of human industrial activities while increasing productivity. Recycling waste and optimum usage of our natural resources. Every company must put environmental factors into consideration while setting up models. Some businesses have an undeniable impact on the environment—for example, the mining industry, food processing industry, and iron-making industry. The impacts are undeniable, but they can be reduced by seeking better alternatives.
The success of a business model is not only determined by the business owners or stakeholders. Do the employees believe in the goal? Is it accepted and acknowledged by the majority in the area in which the company operates? A sustainable business model should have the support and approval of its employees, stakeholders, and the community it operates in. This pillar can be fortified by various means. Part of it boils down to how you treat your employees, stakeholders, and your customers both locally and internationally.
Companies should focus on retention and engagement strategies to further strengthen the social pillar. Creating job opportunities in an area, developing an area and better pay for employees can help strengthen this pillar.
On a global scale, companies must consider some conditions for the price and structure of their goods and services.
Factors to consider when designing a business model
Here we are talking about Factors to consider when designing a business model:
– Customers Segmentation
Without customers, a business model will fail. Business owners and stakeholders should identify their customers. They can group them and segment them with common and specific characteristics.
– Value schemes
These are values that make customers choose one product over the other. Every company creates values to meet the needs of their customers and make a profit. What will make them choose your product over another? There are many things customers consider while selecting a product: price, newness, performance, brand popularity, cost reduction, price reduction, accessibility, convenience, trends, and designs. You might not be able to satisfy all conditions, but you can choose a great market position.
– Lanes of trading
Lanes of trading are what bring the value schemes to the customers. You can reach your customers through a combination of channels both direct and indirect. This is to sell your products, render services, raise awareness and provide customer support. Many companies use online and offline means to reach out to people.
– Customer Relationship
Customer relationships are very important in building a sustainable business model. Gaining new customers, retaining them, and meeting their needs helps the business. A strong and positive customer relationship will help to strengthen the overall customer experience. This could be by appreciating long-term customers, attending to their complaints on time or giving discounts.
– Revenue Streams
What is your business all about? How do I intend to generate revenues? Is it one-time payments or segmented payments? You can get revenues in two ways: Time payment and spread or ongoing payment. The company might allow its customers to pay in installments.
– Main Resources
Another factor to consider is your main resources. What are your main resources? How close are you to getting them? What is the price of alternative resources? Every business needs resources to sustain – physical, material, intellectual, labor, etc.
– Main Activities
These are critical tasks a company engages in to succeed. For successful operations, different companies engage in different crucial activities. In the production process, problem-solving, networking, etc.
– Important Partnership
Companies can survive alone, but important partnership makes them stronger. It helps in optimizing a business reduces risk and access to resources. There are some types of partnership – strategic partnership with non-competitors, joint ventures, alliances with a different market niche, and supplier and buyer partnership.
– Cost structure
The cost structure is an important factor to consider. This is the structure for every payment coming in and out of the company. You need a good cost structure for proper accountability. Often, companies use different types of cost structures which are: cost-driven and value-driven. As the name implies, a cost-driven cost structure focuses on reducing the cost incurred on the business. Unlike the cost-driven, value-driven focuses on creating greater values.