Report on building capacities on ‘Sustainable Business Modelling for Cleantech’

Capacity upgrading module 6 developed in the

framework of the “Africa-Europe Innovation Partnership”

Report on building capacities on ‘Sustainable Business Modelling for Cleantech’ Capacity upgrading module 6 developed in the framework of the “Africa-Europe Innovation Partnership”

May 2021

Authors: Aurane Lamy & Fernando J. Diaz Lopez, AEIP Team

Contributors: Henning Breuer, Head of UX Berlin - Innovation Consulting and Professor for Business Psychology at HMKW Berlin & Florian Lüdeke-Freund, Chair for Corporate Sustainability, ESCP Business School.

i

Table of Contents 1 What is a pattern for sustainable business model innovation? ............................. 4

1.1 Green Razor and Blade ...................................................................................... 51.2 Freemium ......................................................................................................... 51.3 Inclusive Sourcing Pattern ................................................................................ 6

2 Case study .................................................................................................. 6

3 Working session ........................................................................................... 7References ........................................................................................................ 9Vitae – Facilitators and Moderation team .............................................................. 10

Introduction

This document has been developed in the framework of the capacity upgrading activities delivered as part of the “Support to EU-Africa Innovation Cooperation” project financed by the European Commission (see https://africaeurope-innovationpartnership.net/). The project intends to connect the technology and innovation ecosystems in Africa and Europe in order to align disruptive innovation creating better opportunities of growth and scale-up for entrepreneurial ecosystems on both continents.

As part of the AEIP project and based on the need’s assessment done at the start of the project, capacity upgrading activities have been implemented in light of enhancing individual, organizational and institutional knowledge & skills. A series of capacity upgrading workshops and webinars have targeted African entrepreneurs, tech hubs and technology transfer actors, in a bid to facilitate technology and innovation partnerships between EU and Africa.

• A first training module specifically looked at the landscape of EU funding opportunities specifically designed to support the strengthening of African incubators/accelerators, start-ups and entrepreneurs.

• A second training focused on developing sustainable business models. • A third training session seeks to deep dive into matters of financing for start-ups. • A fourth training focused on Technology Transfer Offices. • A fifth training topic was “Driving Corporate Innovation in Africa: Key Challenges

and Opportunities”.

The relevance of Cleantech for Africa

The choice to organise a new workshop around sustainable business modelling followed a combination of a strong interest in the topic, and the very thriving conditions for developing cleantech ventures in Africa. The global market of cleantech has been estimated to be in the order between 3,7 to 6.4 trillion USD. Such a dynamic and open sector offers unique opportunities to start-ups and consolidated companies alike. According to the World Bank, about 1.6 trillion USD of the global cleantech market is readily accessible to small and medium size companies1.

The cleantech market is comprised of many diverse sectors, including energy efficiency, sustainable water management, environmentally friendly power generation, storage and distribution, material efficiency, sustainable mobility, and waste management and recycling2. Cleantech companies offer products and services to many different sectors and industries. Manifold ‘green’ industrial applications are now part of portfolios targeting diverse industries such as consumer products and retail, agro-food, building and construction and the smart industry. According to a report by United Nations, eco-innovative companies in developing countries using and/or delivering cleantech solutions can even tap into saturated markets, showing annual average growth rates in the order of 15%3.

1 See: https://www.infodev.org/infodev-files/green-industries.pdf 2 Figures according to BMU and Infodev reports. 3See: https://wedocs.unep.org/bitstream/handle/20.500.11822/10613/BCForEI_EN.pdf?sequence=1&isAllowed=y

The value of the market potential of the cleantech market in Africa has been estimated in 235 billion USD, according to the Infodev and the World Bank4. According to the same source, the African continent is considered to be a very fertile ground for the development and transfer of clean tech in the areas of wastewater, sustainable water management, solar energy, and small hydro power. Support to cleantech incubation and acceleration is getting quite a lot of traction in recent years. A growing number of clean/green tech hubs and programmes in operation in South Africa, Kenya, Ghana, Ethiopia, and Morocco (e.g., UNIDO Cleantech Programme and/or the World Bank’s Climate Innovation Centres)5. Results are starting to be visible since the first appearance of South Africa ranked the 29th position of the global cleantech innovation index of 20146. With 9935 new ventures listed in the CrunchBase database7, cleantech start-ups in the African continent have attracted over 140 million USD in the year 2019 according to a report by Disrupt Africa8.

About the workshop

The topic of the fifth training webinar was “Sustainable Business Modelling for Cleantech”. The session was provided by two external speakers, Prof. Dr. Henning Breuer, Professor of Business and Media Psychology at HMKW and founder of UXBerlin – Innovation Consulting, and Prof. Dr. Florian Lüdeke-Freund, Chair for Corporate Sustainability at ESCP Business School. The workshop was held on 3rd of May 2021, with the participation of 20 participants (start-up, tech-hub, individual expert, public and corporate organisation).

The session was moderated by Dr. Fernando Diaz Lopez, member of the AEIP team and Associate Professor Extra-ordinary at Stellenbosch University, in South Africa.

In this webinar participants learned to apply sustainable business model design patterns to an innovation challenge or a new business idea in the field of cleantech. Using a values-based business modelling tool, the Business Innovation Kit (Breuer & Lüdeke-Freund, 2018) and an online collaboration platform (Mural) they generated and prioritised ideas, how to advance the business model in a sustainability-oriented manner and sketched and refined new business models.

About this report

This document represents the go-to source of information for trainers and participants of capacity upgrading activities focusing on this module (e.g., webinars, face to face training sessions). In addition to this report, a slide deck, testing material, and a supporting documentation kit have been developed and are available on the projects document repository which can be found here: https://africaeurope-innovationpartnership.net/resources.

By exploring this document readers can expect to gain a clear understanding of:

• How to capitalise on the green and social values that motivate and guide green start-ups in delivering sustainable innovations?

• How to support the process of growing a business idea to convert it into a profitable and sustainability-oriented business models innovation in cleantech?

4 IDEM, Infodev. 5 See: https://www.infodev.org/climate and https://www.unido.org/sites/default/files/files/2018-12/GCIP-Brochure-2018.pdf 6 See: https://www.cleantech.com/indexes/the-global-cleantech-innovation-index/2014-report/ 7 Estimated figures according to the Crunchtech database (November 12, 2020). 8 See: https://www.future.africa/home/africas-cleantech-imperative

• How to improve the sustainability profile of an existing business idea? • How to integrate brainstorming from multiple stakeholders and build a business

case

The following sections are organised following the same structure of the “Sustainable Business Modelling for Cleantech” webinar. A first section presents a brief overview of the relevance of sustainable business models patterns on innovation activities. Section two includes a brief description of the case study used during the webinar session. A third section describes the activities carried out during the workshop, and key results from the practical exercise implemented. A fourth and final section includes references and a brief biography of the team behind the preparation and delivery of the workshop.

1 What is a pattern for sustainable business model innovation?

The workshop was facilitated by Professors Henning Breuer and Florian Lüdeke -Freund, with the moderation of Fernando Diaz Lopez (See section 4). It was delivered in a virtual and interactive format; and it included a keynote lecture about the main elements used to describe patters of sustainable business models. This section presents an overview of the content of such presentation.

The departure point of this session was about the relation of business and sustainable development. Business – from entrepreneurial start-ups to large multinational corporations – has a vital contribution to make to sustainable development. However, companies need to shift towards different business model design based on sustainability principles – yet, they need to remain competitive in the market.

The reflection of the workshop was structured around the use of patterns. Patterns can be defined as the design of useful things that help achieve pre-defined purposes9. Patterns represent the essence of solutions typically used to tackle recurrent challenges in a given field or discipline. They are generalised problem-solution combinations. So, business model patterns are generalised business model solutions to recurrent problems in the value creation activities of organisations10. Henning Breuer and Florian Lüdeke-Freund have identified 45 patterns organised in 11 groups to support business model innovation for sustainability for example: freemium, circular economic, product service, multi-sides platform. Ten international experts helped in grouping the patterns and evaluated their sustainable value creation potential.

Patterns for sustainable business model innovation are templates for designing new business models, or for changing existing ones, with the deliberate aim of creating sustainable value through business means.

The following sub-sections include a brief description of three of the sustainable business models used in this workshop: green razor and blade, freemium and inclusive sourcing

9 Milgrom, P., & Roberts, J. (1995). Complementarities and fit: Strategy, structure, and organizational change in manufacturing. Journal of Accounting and Eco- nomics, 19, 179-208. 10 Lu ̈deke-Freund, Breuer, & Massa (forthcoming): Sustainable Business Model Design – 45 Patterns. Self-Published. Berlin.

pattern. To discover all the patterns please refer to the instructor’s preview of their forthcoming book about sustainable business models patters.11

1.1 Green Razor and Blade

Traditional business models often build on the idea of constant sales growth and thus increasing resource consumption. But how to open up new and growing revenue streams while reducing resource use? One solution is a modular offering that combines a durable product (‘razor’) with shorter-lived consumables (‘blade’). Unbundling an offering in this way can help save resources and reduce negative impacts.

The Green Razor and Blade pattern unbundles long- living products and short-lived consumables and thus enables business models that can mitigate the negative effects of growing businesses.

One application of the green razor and blade pattern is the companies SodaStream. SodaStream mainstreams homemade sparkling water. The company sells sparkling water makers for home use, gas cylinders, flavours, and other accessories like design bottles. The sparkling water maker (‘razor’) is the long-living device needed to make revenues with gas and other consumables (‘blade’). The gas comes in refillable metal cylinders that are made to circulate as long as possible.

The application of the green and razor model can result in negative environmental effects (for example production of packaging waste for the coffee capsules), the pattern can also result in positive environmental effect and waste reduction. The Green Razor and Blade pattern can unlock a firm’s ability to reduce resource consumption by creating the conditions for profitably marketing products that are built to last coupled with highly reusable or recyclable disposables or components, as in the case of SodaStream.

1.2 Freemium The basic idea of Freemium (free + premium) is to unbundle an offering to provide a basic service or product free of charge, while a fee is charged for advanced features and functionality12. These free basic offerings allow businesses to attract customers who are unable or unwilling to pay, and money is made from customers paying for the freemium offering. In in sustainability-driven businesses the focus is on expanding the reach of their ecological and social solutions. Products and services that reduce ecological and social harm, or even add ecological and social value, can gain access to new markets by applying variations of the Freemium pattern13.

Apart from more classical example (Dropbox, Spotify …), one application of the freemium pattern is the case of Aravind Eye Care System. In India, there is a great need for eye care treatment, but the majority of people in low-income rural areas are not aware or unable to pay for eye care services. Aravind Eye Care System, a network of hospitals in India, operates a Social Freemium business. Aravind utilises the revenues from its fully paying patients to cross-subsidise free treatments for those who cannot pay. While the quality of

11 Lu ̈edeke-Freund, F., Breuer, H. & Massa, L. (forthcoming). IDEM.

12 Clinton, L., & Whisnant, R. (2014). Model behavior: 20 business model innovations for sustainability. London: SustainAbility, p. 33.

13 Lu ̈edeke-Freund, F., Breuer, H. & Massa, L. (forthcoming). IDEM.

treatment is the same for all patients, the paying patients receive premium services such as air-conditioned rooms.

Simulation modelling research has shown that the Freemium model can create a reinforcing feedback loop between value creation and value capture, making it a robust and scalable business model for sustainability14. A major issue concerning this pattern is achieving the right balance between paying and non-paying users so that the former fully subsidise the latter.

1.3 Inclusive Sourcing Pattern A lack of attention to the livelihood of local suppliers often results in a decline in economic and social terms. This happens, for example, to smallholder farmers who are unable to access profitable market opportunities, despite the growing demand for agricultural products. Although the inclusion of suppliers in developing countries is being facilitated through cooperatives and sustainability standards (e.g., Fairtrade), these require capabilities and upfront investments that are often unavailable to small-scale producers.

Inclusive Sourcing comprises the practices and actions aimed at integrating local, low-income, less skilled or small local suppliers, such as independent farmers or women-owned businesses, into supply chains. This can require providing financial support and training opportunities to develop local suppliers’ capabilities and help with investments15.

Main takeaways

I. Business model patterns appears as a solution to innovate and exchange around new business model

II. Patterns can be used to integrate ecological and social considerations into sustainable business model design.

2 Case study During the webinar, a case study was used to apply several sustainable business model patterns. The main challenge addressed during the session focused on how to improve access to affordable and reliable energy in rural areas. The solution studied here comes from Agali Awamu, from the sixth GIZ Lab of Tomorrow (lot) in Uganda.16 The lot enables company representatives and entrepreneurs from emerging markets and the EU to jointly take up opportunities for sustainable business with new joint ventures or start-ups. It enables businesses, investors and development agencies to leverage this market potential for sustainable business and reaching the SDGs. The lot is run on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ) and is implemented by the Gesellschaft für Internationale

14 Ta ̈uscher, K., & Abdelkafi, N. (2018). Scalability and robust- ness of business models for sustainability: A simulation experiment. Journal of Cleaner Production, 170, pp. 654-664

15 Lu ̈edeke-Freund, F., Breuer, H. & Massa, L. (forthcoming). IDEM . 16 See: https://www.lab-of-tomorrow.com/agaliawamu

Zusammenarbeit (GIZ) GmbH, which provides access to an extensive network of international key players from the public and private sector.

Agali Awamu’s aims to tackle the issue of access to clean energy in Uganda. Many Ugandan farmers and families in off grid rural villages use firewood to cook. Thus, they often struggle with smoky kitchens, suffer from health issues as the fumes are inhaled and have to walk long distances for fuel. This practice also leads to increased deforestation. Gas stoves are not accepted well by the population, as gas is expensive and the gas containers heavy.

Figure 1 Picture from Agali Awamu’s project

Source: Lab of Tomorrow (https://www.lab-of-tomorrow.com/agaliawamu ) Agali Awamu builds an ecosystem that enables farmers to receive clean cooking gas in return for their organic waste. In some areas of Uganda, most smallholder farmers deliver their produce to a local sugar producer for processing. The factory produces sugar and biological waste. Agali Awamu aims to use this waste to produce biogas. Farmers come to bring their produce and, on their way, back take biogas for cooking or heating. For transport, a specific backpack is constructed (see picture), which makes it easier to transport the gas back home.

3 Working session After the presentation of the case study, the participants were split into two groups to work on how to turn the conversion of organic waste to biogas for clean cooking into a self-sustaining business? The two groups worked on the same project with two different sustainable business model patterns: Freemium and Inclusive Sourcing Pattern.

For one hour, participants exchange and discuss value proposition, revenues streams and key stakeholders to engage in order to sketch a business model for this project. A brainstorming was organised following 5 steps: • Review the problem and refine the challenge at hand

• Review the pattern (Freemium or Inclusive Sourcing) Business model ideation: Come up with ideas regarding the core values and selected t business model components (value proposition, stakeholder groups, revenue model) using the pattern.

• Vote for most promising business model ideas. • Prepare a short pitch. For example, in the Freemium group, several ideas emerged regarding revenues streams.

Figure 2 Screenshot of the Mural during the workshop

At the end of the workshop, each group shared a little pitch about their business idea. The pitch from the first group included these elements:

• Our Value Proposition consists of saving time for gathering energy, proving free energy for households with low consumption, and charging premium to companies and government authorities.

• We are offering free electricity for the local community at given hours (e.g., avoid peak time).

• Other Stakeholders include waste collectors and a cooperative to operate the biogas service in order to ensure the required supply and demand.

• We generate revenues through premium offering to companies in the region (using high volumes of biogas on a reliable basis)

• We address the problem of unsustainable energy solutions through a point-based system to incentivise waste collection. We use the pattern freemium to charge premium customers (companies or government) to subsidise free offerings to waste collectors and private households in need.

The pitch from the second group included these elements:

• Our value proposition consists in clean energy and new income opportunism • We are offering biogas (in cylinders, bags/pillow and fertiliser). • Other stakeholders include small farmers as input providers, various users of

biogas (e.g., hotels local authorities)

• We generate revenues through biogas sales and fertiliser sales • We address the problem of inclusion and empowerment through sourcing waste

from small local farmers • We use the pattern inclusive sourcing to offer income opportunities to small

farmers and clean energy to various users in total there is a potential for local empowerment.

Main takeaways • This capacity building session demonstrated that business model patterns are a useful

tool to develop ideas and think about sustainable business model. • By providing a prescribed framework, patterns allow for creative thinking and

innovation ideas. • Ideas coming from the brainwriting session should then be included in a more global

thinking as different patterns can be used of the same business model idea.

4. Additional References and Vitae

Additional References

Breuer, H. & Lüdeke-Freund, F. (2018). Values-Based Business Model Innovation: A Toolkit. In: Moratis, L., Melissen, F. & Idowu, S.O. (Eds.). Sustainable Business Models, pp. 395-416. Springer.

Breuer, H. & Lüdeke-Freund, F. (2017). Values-Based Innovation Management. Innovating By What We Care About. Palgrave Macmillan: London.

Diaz Lopez, F.J., T. Bastein & A. Tukker. (2018) Business model innovation for resource-efficiency, circularity and cleaner production: what 143 case studies tell us. Ecological Economics. Special Issue: Policy for a Resource Efficient Europe. 155, 20-35. DOI: https://doi.org/10.1016/j.ecolecon.2018.03.009

Lüdeke-Freund, F., Carroux, S., Joyce, A., Massa, L., Breuer, H. (2018). The Sustainable Business Model Pattern Taxonomy – 45 Patterns to Support Sustainability-Oriented Business Model Innovation. Sustainable Production and Consumption, vol. 15, pp. 145- 162.

Lüdeke-Freund, F., Bohnsack, R., Breuer, H. & Massa, L. (2019): Research on Sustainable Business Model Patterns – Status quo, Methodological Issues, and a Research Agenda, in: Aagaard, A. (Ed.): Sustainable Business Models. Houndmills: Palgrave, 25-60.

Lüdeke-Freund, F., Schaltegger, S. & Dembek, K. (2019): Strategies and Drivers of Sustainable Business Model Innovation, in: Boons, F. & McMeekin, A. (Eds.): Handbook of Sustainability Innovation. Cheltenham: Edward Elgar, 101-123.

Schaltegger, S., Hansen, E. & Lüdeke-Freund, F. (2016): Business Models for Sustainability: Origins, Present Research, and Future Avenues (Editorial), Organization & Environment, Vol. 29, No. 1, 3-10.

Vitae – Facilitators and Moderation team

Henning Breuer (Ph.D.) is founder of UXBerlin – Innovation Consulting, and professor of business psychology at the University of Applied Sciences for Media, Communication and Management in Berlin, Germany. His consulting work for clients such as General Motors, PSA Groupe, Dropbox, Deutsche Telekom or Lufthansa Systems focuses on ethnographic field research, new business models and innovation strategy. As a visiting professor and researcher, we worked at Waseda University Tokyo, the University of Chile and the University for Applied Sciences Potsdam.

Florian Lüdeke-Freund (Ph.D.) is Professor for Corporate Sustainability at ESCP Business School, Berlin, Germany, where he holds the Chair for Corporate Sustainability. He is a Research Fellow at ESCP’s SustBusy Research Centre and Leuphana University’s Centre for Sustainability Management (CSM). He also was a Research Fellow at the Governing Responsible Business Research Environment at Copenhagen Business School (CBS), Denmark. Prior to joining ESCP Business School, he was a Postdoctoral Researcher at the University of Hamburg and earned a PhD in social sciences and economics from Leuphana University.

Fernando J. Diaz Lopez (Ph.D.) is a principal consultant and researcher at Technopolis Group. He holds honorary positions as Associate Professor Extra-ordinary in Sustainability Systems at Stellenbosch University and as a Research Fellow in Eco-innovation and Circularity at the Centre for Sustainability Environmental Economics and Dynamic Studies (SEEDS), University of Ferrara. Prior to joining Technopolis, he worked for over 12 years at the Netherlands Organisation for Applied Scientific Research TNO. Fernando holds a Ph.D. in International Economic Development from the University of East Anglia (UK).

The preparations and delivery of the workshop were conducted by Auriane Lamy and Makany Touré rom the AEIP team. The technical aspects of the workshop were supported by Aurélia Chaise, from Instrasoft.