Sustainable Business Models ESA

Hunter Maloumian November 6, 2012 at 12:49 PM 

Corporations in the past two decades have begun to take on a new identity. Corporations have realized the competitive advantage they gain by implementing sustainable business models into their everyday practice. These sustainable business models are a reflection of the change in attitudes of the consumers they serve. As the world’s population becomes more environmentally aware, corporations stand to profit by catering to this segment. These corporations will not only be in a position to have a significant impact on the earth but will also be able to increase their own bottom line.

According to Wendy Stubs “organizations will only be sustainable if the dominant neoclassical model of the firm is transformed, rather than supplemented, by social and environmental priorities” (1) Organizations need to embrace a sustainable business model and it needs to be implemented from the top down in order for it to penetrate the company’s culture.  In order to achieve a sustainable business model these organizations needs to systematically address their shortcomings in addition to influence key stakeholders to join them in their efforts. Wal-Mart has been influencing their stakeholders to join them in their efforts to categorize the environmental impact of their products. Wal-Mart issued a statement to its suppliers asking them to fill out a questionnaire detailing how their products are made and what sustainable actions they take.

Sustainable Business Models can only be successful if consumers “buy into it”.  According to a Deloitte study, sustainable consumption in developed countries still remained a niche with most consumer behavior still being dictated by price, quality, and convenience. (2) In order to achieve a sustainable business model it is therefore necessary to overcome these consumer tendencies. It is important that the products being offered not only have a positive transparent impact on the environment but also have the same quality, features, and price point of their “browner” counterparts.

Ray Anderson the Company Chairman of Interface Evergreen implemented seven goals that would eventually yield the company a sustainable business model. The efforts implemented by Ray Anderson had a tremendous positive effect on the organizations triple bottom line. Traditionally, Interface sold carpets to its consumers that consisted of nylon, PVC, and an adhesive. When the useful life of these carpets was exhausted they would be sent to a landfall where they would remain for approximately 20,000 years. According to the HBR case study, the carpet industry contributed 4.6 billion pounds to landfills annually. (3) In order to tackle the problem of excess waste in the carpet industry, Interface establish a program called QUEST whose goal was to transform Interface into a zero waste company. Waste was defined as any measurable output that did not create customer value. Interfaces sustainable business model was taken a step further by upgrading the different factories across the world to utilize renewable energy sources. By focusing on renewable energy such as solar power, Interface severed their ties to the whims of oil bearing nations and would be able to better focus on strengthening their own company moving forward.

Anderson wanted to introduce a revolutionary way of providing “floor” coverings for his customers in a way that would protect the environment while simultaneously adding to both Interfaces and the customer’s bottom line.  The idea proposed by Anderson was that companies would lease the carpet from Interface instead of purchasing it. At the end of the leasing term which was designated at seven years Interface would reclaim the carpet. This carpet would then be recycled and become an input for future carpet installations, effectively “closing the loop”. The company leasing the carpet would benefit because the capital necessary for the lease would not affect the balance sheet because it would be an operating expense instead of a capital expenditure.  In addition, Interface would be responsible for the maintenance of the carpet and after the second year they would replace 5% of the carpet on an annual basis. Due to the innovative carpet tiles the damaged sections of the carpet could be easily replaced at a minimal cost. By only replacing the damaged section, Interface would be able to significantly reduce its impact on the environment because they now only needed to produce a fraction of what they use to. From this perspective, Anderson has created a sustainable business model because it has a positive impact on the triple bottom line. Through the leasing program, Interface will receive monthly payments that will result in additional cash flow as well as limiting the amount of new carpet in landfills. The final step of the leasing process, reclamation, allows Interface to personally ensure that the carpet is being disposed of in the most environmentally friendly manner and if able to it will be reused as an input further cutting costs.

The model that Anderson had developed is sustainable but the complexities of leasing versus buying are confusing the customers. The result has been that customers are interested in leasing carpet from Interface but often end up deciding to purchase the carpet out right due to these complexities. The leasing model was introduced in 1995 and as of 2001 only a half dozen clients chose the option to lease over purchase. From this data it can be concluded that the leasing model needs to be revamped in order to better satisfy the needs of the customers.  The carpet leasing program proposed by Interface is revolutionary as far as creating a sustainable business model but it is something that our society may not yet be ready for.

1. http://oae.sagepub.com/content/21/2/103.abstract 2. Deloitte: A Road Map for Sustainable Consumption (2010) 3. HBR. Interfaces Evergreen Service Agreement (2003) 4. Cultivating the Green Consumer. Bonini and Oppenheim. (2008)

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One thought on “Sustainable Business Models ESA

  1. tlhill2012 November 25, 2012 at 10:17 AM Reply

    Hunter – very nice summary of the need for new business models, and of Interface’s good start (reducing waste) and poor attempt (to sell a new business model). What contributes to the customers’ confusion? And what could Interface do to improve its understanding of customers and their buying process, its own sales efforts and systems, and its DNA – from manufacturing to service?

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