Sustainability Business Model: a case study of the evolution of activity system by eco-design and eco-

innovation practices to value wine production Hiam Serhan, Gwenola Yannou-Le Bris To cite this version:
Hiam Serhan, Gwenola Yannou-Le Bris. Sustainability Business Model: a case study of the evolution of
activity system by eco-design and eco-innovation practices to value wine production. OFEL 2018, Apr
2018, Dubrovnik, Croatia. ffhal-01813504ff 1 Sustainability Business Model: a case study of the evolution
of activity system by eco-design and eco-innovation practices to value wine production Hiam Serhan
AgroParisTech, SESG, Université Paris-Saclay, Paris, France Gwenola Yannou-Le Bris AgroParisTech, SESG,
Université Paris-Saclay, Paris, France Laboratoire Genie Industriel, CentraleSupélec, Université Paris-
Saclay, Paris, France hiam.serhan-murray@agroparistech.fr gwenola.yannou-lebris@agroparistech.fr
Abstract Innovation, sustainability, sustainability innovations are the challenges that today’s businesses
are facing. While many scholarly researches have produced a great deal of useful knowledge about
various forms of sustainability and innovation and their integration in business models, there has been
no attention given to the process through which a business activity model evolves from a quality
management system to a sustainability business model. In this paper, through a case study, we address
this gap in research by focusing on the evolution of management practices related to the dynamics of
new knowledge introduced by management innovations, i.e. the implementation of management tools,
ideas, processes and practices in organizations, intended to alter the way in which the managerial work
is performed and to further organizational goals. Building on Engeström theoretical model of activity
system and expansive learning, we show how a French wine Château has learned to improve its
capabilities to reinvent its business model through the implementation of ISO standards and created
sustainability values to its products, services and customers. Our results show how sustainable
development is achieved through the implementation of eco-design and eco-innovation practices. They
also show that sustainability in business models and practices is a dynamic and expansive learning
mechanism. It is leveraged by management tools and management philosophy that help organizations
exploiting their good practices, and exploring and seizing in their environment and among their key
partners, the opportunities that can reconfigure the value of their products and services. Key words:
Business model, Eco-conception, Eco-innovation, Management innovation, Sustainability, Value
creation. Track: Governance Word count: 9612 words 2 1. Introduction The systematic improvement of
the environmental performance of industrial products and services to generate sustainability
innovations is becoming the core element of good governance and good business. While many scholarly
researches have produced a great deal of useful knowledge about various forms of sustainability and
innovation and their integration in business models (Nidumolu et al., 2009; Teece, 2010; Millar et al.,
2012; Lüdeke-Freund, 2013), there has been no attention given to the process through which a business
activity model evolves from a management system to a sustainable business model. Through a case
study, we address this gap in research by focusing on how a particular company has improved its
capabilities to reinvent its business model through the implementation of management innovations (ISO
standards) and created value to its products, services and customers. A management innovation is the
implementation of management tools, ideas, and processes and practices in organizations, intended to
alter the way in which the managerial work is performed and to further organizational goals (Birkinshaw
et al., 2008). The purpose of this paper is to show that innovation in business models to implement
sustainability in strategic goals and operational practices occurs through a dynamic process of learning.
We argue that management tools that organizations introduce to improve their performance,
implement in management systems the new knowledge that allow these learning mechanisms and the
reconfiguration of value creation process. Building on Engeström theory of system activity and expansive
learning (2001, 2015), we develop a case study by focusing on the role of the middle manager (quality
manager) of a French wine Château who interacts with management innovation tools (ISO standards),
within a community (internal and external partnerships) to reach and extend the organizational goals
and reconfigure its business model towards the sustainable development pillars (economic, social and
environmental). The interest of this study is twofold: First, it shows how some ISO management systems
standards implemented to manage quality (ISO 9001 of quality management system and ISO 14001 for
environmental quality management) and ISO 26000 for social responsibility, can be used as frameworks
and catalysts for the change of business models. Second, it illustrates how the evolution of managerial
practices and ideas improved the organization’s business model in a sustainable way to achieve societal
needs through eco-design and eco-innovation practices. Arguments are presented in three sections: The
first section develops the literature review through three points. The first point describes how
sustainability becomes an issue for innovation and integrate business models to frame strategic and
operational practices. The second point explains how management innovations such as ISO standards
can be frameworks for learning, evolution of practices and reconfiguration of business models. It
develops the principles of ISO 9001 of quality management, ISO 14001 of environmental management,
and ISO 26000 of social responsibility standards. The third point examines Engeström model of activity
system and expansive learning to explain how an activity system can be managed as a learning
framework through the interaction of managers with management tools and 3 organizational
stakeholders’ expertise, and how learning generates knowledge, relations that expand organizational
goals sustainably. The second section represents our case study. The third section represents the
discussion and the conclusion. 2. Literature review 2.1 Sustainability and organizational change The
word sustainability stems from the concept of sustainable development, which means the ability to
manage business resources indefinitely. Development consists of a set of practices, sometimes
appearing to conflict one another, which require – for the reproduction of society – the general
transformation and destruction of the natural environment and of social relations. Its aim is to increase
the production of commodities (goods and services) geared, by way of exchange, to effective demand
(Rist, 2006). In today’s businesses, the quest for sustainability as a societal requirement is challenging
companies and imposing change programs in business models design, i.e. the processes, technologies,
stakeholders, and practices that deliver the value of products and services to customers (Teece, 2010).
To achieve this challenge, organizations must learn how to develop the suitable competencies and how
to implement the appropriate practices that permit the creation of sustainability innovations. The
questions that arise are: what business models are, and how they can help organizations changing their
practices to create and commercialize sustainability innovations? 2.2 Business models and sustainability
innovation challenges Developed in the 90s (Ghaziani & Ventresca, 2005) the concept of business model
remains polysemic. Thus, Osterwalder and Al (Osterwalder, Pigneur et al., 2005) show that this concept
covers different realities according to different practitioners. These authors highlight that the meaning
of this concept extends from the enunciation of the value created for the final customer to the
identification of the activities that generate this value. They propose to define business models as the
representations that provide information on some singular components of the key activities of an
organization (contributors to value creation) and the way they interact. Their model offers to managers
a conceptual support to analyse how their organization creates, delivers and capture value. Moingeon
and Lehmann-Ortega (2010) reformulate this proposition and define business models as the pivot that
links the company's customers and the products or services offered to them through the value chain
activities creating this offer. However, the usage that can be made of this model varies according to the
authors who refer to it and the actors of the organizations that implement it. A first form of use of the
business model is called static (Demil & Lecoq 2010): it reports and describes one or more existing
configurations. This descriptive approach contributes to the constitution of a set of cases whose
existence allows the construction of a typology of business models. A second mode of use of business
models, positions business model as an organizational management tool (Moisdon 1997, David 1998) in
a paradigm of interactive rationality (Oiry, 2001). 4 Indeed, the model is then considered as a
representation that supports the interaction between different actors: the leaders of the organization,
the internal stakeholders that drive the organization processes and the external stakeholders (direct and
indirect customers). The model becomes according to Demil et al (Demil and Lecoq 2010), a support for
change and innovation. In other words, a business model represents an abstract model of the business
strategy. It is dynamic: the nature, and value of its building blocks change or evolve when the
organization learns from its environment why, how and with who, it must change its practices and the
value of its products and services. In line with Chesbrough (2010), we argue that if business models are
used in companies to produce and commercialize ideas and technologies, then, companies produce and
commercialize sustainability innovations through sustainability business models. 2.3 Sustainability
business models: eco-design and eco-innovation practices Sustainability business models take into
consideration the economic, social and environmental impacts of organizations’ activities to achieve
sustainability innovations (Lüdeke-Freund, 2013). Sustainability innovations represents the processes
through which, the criteria of sustainable development pillars (environmental, social, and financial)
integrate the company systems from idea generation to production and commercialization of
products/services (Boons & Lüdeke-Freund, 2013). Results of such processes are new technologies,
products, and services as well as business and organizational models that can be generated through two
strategies related to the circular economy: Eco-design and Eco-innovation practices (Yannou-Le Bris et
Ferrandi, 2016). Eco-design is about improving an existing production system. Its goal is to reduce losses
and wastes. Eco-design is a well-established concept and its most accepted definition is that of ISO
14006:2011 that defines it as follows: “integration of environmental aspects into product design and
development, with the aim of reducing adverse environmental impacts throughout a product's life
cycle”. In Eco design implementation process, five central questions must be treated carefully (Wimmer
et al., 2004): the product modeling (understanding the product system), the life cycle assessment
(understanding the environmental impacts of the product along his life cycle), the eco-design tasks
(environmental and stakeholders requirements), the product improvement (redesign the product to
improve its impacts) and the environmental communication (introducing and marketing eco-designed
product to increase its market share and the company’s image). The improvements to be made are
determined by the measurement of the quantities of flows used or rejected, tons of falls or wastes, the
water volume consumed, etc. during the life cycle of the product. Today, all eco-design approaches have
the common goal of reducing the quantities of water and energy inputs and chemical outputs released
into the water, air and soil in the project development stages. Eco-innovation means the creation of new
knowledge, organizations, ingredients, products, processes and services that provides significant
environmental performances, and the ways of using and sharing them. An ‘eco-designed offer’ derives
from technical and or/organizational innovations. Technological innovations 5 are implemented for the
production of the product (use of certain new ingredients, enhancement of previously neglected co-
products, innovations on energy-consuming processes, etc.). Organizational innovation concerns the
structure of the business model and involves sustainable supply chain and distribution methods.
Developing sustainability business model requires then from businesses the exploration of alternatives
to current ways of doing business as well as understanding consumer concerns and examines product
life cycles (Yannou-Le Bris et Ferrandi, 2016). Achieving sustainability through eco-design and eco-
innovation practices is a learning challenge to food industries. Such challenge starts at the early stages
of learning of students aiming integrating and contributing - with their knowledge and skills – to the
achievement of sustainable development objectives in food companies. For example, in some French
and European universities of agriculture and food technology, ecodesign and eco innovation practices
are introduced in the teaching programs to challenge food sustainability innovations through
“ECOTROPHELIA projects”. These projects developed by students and professors, aim elaborating
innovations in food products and services based on the reconfiguration of management systems and
business models according to the four pillars of food sustainability: economic, environmental, social and
nutritional values. Such sustainability innovations are then proposed to food industries as new issues to
help them overcoming some of the impacts of their business activities according to the societal needs.
Because businesses are a part of societal problems, they are then a part of the sustainability solution.
Business leaders and managers can take an active coresponsibility in creating sustainability business
models by rethinking the customer value proposition and figuring out how to capture revenues and
deliver the products and services that meet both customers’ and societal needs. This “responsible
process” requires “responsible managers” or ‘sustainable entrepreneurs’ who are aware of their social
and environmental responsibilities as well as their financial ones. Sustainable entrepreneurs aim for
multiple outcomes in terms of solutions to social and ecological problems, whereas they are often faced
with limited input availability. They develop new supply chains to gain access to alternative sources,
manufacturing capacities, and management competencies (Hansen & Schaltegger 2013). Sustainable
entrepreneurs pursue the corporate sustainability through the creation of business cases that support
the commercialization of sustainability innovations through their sustainable business models
(Chesbrough, 2010). But before commercializing sustainability innovations, financial, social, and
ecological criteria of sustainable performance must be integrated in strategic and operational practices.
The translation of strategic sustainability principles into operational good practices and their
implementation in daily routines is the task of management and middle managers. Middle managers –
who bridge top management and the bottom line (Drucker, 1986) – can play a crucial role in creating
and maintaining new sustainability management system of a company. Their proximity to the
employees and opportunity to identify and understand conflicts, as well as decoding corporate
messages for employees, play a key role in managing change and contributing to the organization’s
desired goals (Kumarasinghe & Hoshino, 2010). They change the mental schemes, attitudes, relations
and actions of individuals and organizations, and thus facilitate the understanding and implementation
of new requirements that leverage evolution. 6 A company that tries to improve its sustainability has to
change its business model (Schaltegger et al., 2012). Chesbrough emphasizes that if companies may
have extensive investments and processes for exploring new ideas and technologies, they often have
little if any ability to innovate the business models through which their inputs will pass. So, the challenge
of companies is to develop their capability to innovate their business models (Chesbrough, 2010). To
address this challenge, companies engage change programs and adopt various management innovations
or tools (such as ISO management standards) to frame and facilitate organizational change and
innovations in the nature and value of the building blocks that construct their business models. 3. ISO
standards to manage organizational, environmental and corporate social responsibility practices
International Organization for Standardization (ISO) creates standards or documents that provide
requirements, specifications, guidelines or characteristics that can be used consistently to ensure that
materials, products, processes and services are safe, reliable and of good quality, and fit to their purpose
(www.iso.org). For business ISO standards are strategic tools that help reducing costs by minimizing
waste and errors, increasing productivity and customers’ satisfaction. Today there are considerable
international standards that aim to systematize the implementation of business management systems.
Two series of standards issued by the International Organization for Standardization (ISO) had attained
major impact worldwide: the ISO 9000 series, related to the implementation of Quality Management
Systems (QMS) and the ISO 14000 series, related to the implementation of Environmental Management
Systems (EMS). ISO 9001 of quality management system is the first quality management standard
published by ISO and on the impact of its implementation we have the most feedback (over one million
companies and organizations are certified to its requirements). ISO 14001 for environmental
management provides requirements and practical tools for companies looking to manage their
environmental responsibilities. ISO 26000 for social responsibility provides guidance on how businesses
and organizations can operate in a socially responsible way. The principles of ISO 26000 standard help
companies acting in an ethical and transparent way that contributes to the health and welfare of
society. The following section develops the principles and goals of these three mostly used standards
throughout the world (www.iso.org). It describes how they can be introduced in organizations as
management tools to continuously improve goals, practices and partnerships requirements. 3.1 ISO
9001 standard for quality management system ISO 9001 standard represents a set of expert knowledge
encoded into requirements or rules to be implemented in practices (Brunsson & al., 2012) to improve
processes and maximize customers’ satisfaction. Its principles are based on a strong customer focus, 7
the motivation and implication of top management, the process approach and continual improvement,
the management of risks and opportunities, the analysis and understanding of internal and external
context, and the management of organizational knowledge (ISO 9001: 2015) (www.iso.org). These
requirements help constructing a quality management system (QMS) grounded on the continuous
improvement cycle or the plan, do, check, act Deming’s cycle (PDCA). This cycle allows organizations to
adapt their practices to the needs of their environment, by identifying risks to be managed and
opportunities that can be seized to create new values. But the introduction of ISO 9001 requirements
into an established system can create tensions in practices and resistance from employees to adopt the
new rules in their routines (Lambert & Loos-Baroin, 2004). These tensions could provoke the failure of
the implementation process or help organizations discovering the relevant organizational skills and
partners on which they can lean to reconfigure organization’s competences and innovate (Serhan,
2017). We argue that failure or innovation outcome from ISO 9001 implementation depends on the
managers’ skills and managerial style used to approach employees and other stakeholders in quality
management program. We consider ISO 9001 as a management innovation (Serhan, 2017), i.e. a new
management tool to the adopting company, which involves the implementation of a new management
program that alters practices and further organizational goals (Birkinshaw & al., 2008; Ansari & al.,
2010). As a management tool, ISO 9001 is composed of three interacting elements (Hatchuel & Weil,
1995): an artefact of the requirements to implement; the management philosophy that interprets and
implements requirements; a simplified vision of organizational practices and relations, since the
standard is generic to fit all types of organizations. Like all management tools, ISO 9001 has three
functions (Moisdon, 1997): (1) Conformity to rules; (2) Managing internal change by a collective
approach to action; (3) Exploring new opportunities. Through these ambidextrous roles - conformity and
creativity – the creative mission of managers is emphasized. Managers must use the 'disruptive' factors
that feature in their system as levers for expansive learning, which modifies the object and rules of the
organization (Engeström, 2001, 2015). Therefore, it appears that the implementation of new
requirements in practices could be a double learning process: Learning the code and learning by the
code (March, 1991) (Lambert & Loos-Baroin, 2004). By “learning the code” practitioners learn how to
improve their individual operations. Through “Learning by the code”, practitioners learn new knowledge
that expands organizational values. Using the common framework or unified high-level structure of ISO
(common text, terminology and continuous improvement cycle), ISO 9001 structure facilitates the
“graft” of other management standards - mainly ISO 14000 for environmental management- that
expands organizational knowledge, goals and product/service values.