Business Models as Tools?

Business Models as Tools?Sept. 22, 2010

As long as economies can physically expand, business models and profitability calculations are objectives, and money their motivator. In Compression, this logic flips. Minimizing resource use and abuse become major objectives. However, human transactional systems mandate that organizations not run out of cash, and money is a human motivational tool. But thinking of money as a motivator to reduce resource consumption leads to innovative business models as “tools” to deal with Compression.

Of course, many other “tools” help us do more with less over product and process life cycles. Guided by lean thinking, lean tools help us probe questions that just “thinking green” may not. For example, one can propose converting a warehouse building to a high “green” standard. But first probe deeply whether any warehouse is needed.

Less known is mass-energy balance, or input-output analysis, a tool used to measure everything in and everything out of any system, whether small as a molecule or large as a regional ecology. This maps how we affect every resource we employ to survive and to enjoy life, whether it has a dollar value as a human transaction or not. Mass-energy balance as part of life cycle analysis adds a time dimension. The objective is to serve our needs with minimal resource use and minimal ecological disruption, but these general tools, plus specialized ones do not offset business models that stimulate us to consume more and more “stuff.”

The principles of a business model in Compression are simple; sell a service, not stuff, and devise its monetary incentives to stimulate everyone to minimize consumption of resources necessary for the service. To devise such a model, start asking key questions.

Do we sell a consumable, like food, or an artifact like a table lamp? If an artifact, why do users want to own it: to customize it, enjoy it for aesthetic reasons, have it appreciate in value, etc. Or do they only want the service it provides? For example, do they buy a vehicle for transport, as a status symbol, or to make a personal statement? If they only want transport, why not a service like Zipcar – or taxis, busses, trams, and trains. To have low energy life cycles for vehicles, business models have to attract many more people to a lifecycle service. Suppose even tires were leased as a service instead of sold. Would that give owners of that life cycle incentive to resolve tires’ end of life disposal problem?

This is not new. In a bygone era, business models included phones in phone service packages, and leased copiers on per page service contracts. Today, most power companies have programs to help customer use less electricity. Interface, Inc. will set up service contracts for carpet – and recycle their own carpet. PortionPac Chemical sells cleaning services to customers; then trains their cleaning staffs to use less cleaning agent. Less cleaning agent shipped yields a bigger margin on a contact. “Chauffage” is a French service to keep a building’s internal temperature and humidity within range, modifying both architecture and thermal sources to minimize energy use.

Writing, testing and using software also consumes energy and equipment, a growing amount of it. To curb this, a possibility with “cloud computing” is paying for software functions actually used, not for all the extras embedded in complex packages. That encourages software providers to give users only what they want. Software has long shifted computers and other energy using devices into minimal energy mode when not in use, and this can become both smarter, and more widely deployed.

Except for Interface, all these business models are for independent entities, not enterprises – a term meaning total supply chains. Unfortunately, each party in a supply chain maximizing its profit does not assure that a total supply chain is thereby more efficient (as discovered by players of that old Beer Game simulation). A business model for full product life cycle processes (as with recycled Interface carpet) is of necessity an enterprise business model. The parties to such a supply chain have to work out their own roles in it, and agree on everyone’s rewards for participating in it.

So what kind of different business model vision can you devise for your company, or your supply chain enterprise? Doing that leads to other questions, like the kind of working organizations that are able to deal with enterprise business models, plus all the other challenges of Compression coming upon us.

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