Sustainability - session 4

Why do alternative business models exist?

They emerge in response to market and state failures, where traditional businesses and governments fail to adequately address economic, social, or environmental problem

What are the main causes of market failure?

• Inefficiency.

• Abuse of market power.

• Asymmetric information.

• Externalities (e.g., pollution).

• Public goods that markets may underprovide.

What are the main causes of state failure?

• Inefficiency and bureaucracy.

• Budgetary and constitutional constraints.

• Lobbying and political self-interest.

• Information failure.

• High enforcement costs.

• Policy myopia and neglect of invisible stakeholders.

Why are alternative business models interesting for businesses?

Five main reasons:

1. Regulatory pressure.

2. Risks and opportunities.

3. Intrinsic motivation.

4. Pressure from stakeholders.

5. Access to capital.

Where can alternative business models be found?

Across different industries and organizational forms, including environmentally responsible businesses, circular enterprises, social enterprises, and cooperatives.

Examples shown in the slides include Patagonia, Ecopower, SeQuenza, CoopCycle, and Les Petits Riens.

What is a business model according to Osterwalder and Pigneur (2010)?

The rationale of how an organization creates, delivers, and captures value.

What are the different dimensions of value in a business model?

• Financial: Economic and monetary value.

• Social: Benefits for people and society.

• Environmental: Benefits for the environment.

• Quality: Quality of products and services.

• Time: Value can be considered in the short term or long term.

What is creating shared value (CSV)?

Improving a company's competitiveness while simultaneously improving the economic and social conditions of the community in which it operates.

It creates value for shareholders and other stakeholders.

What are the three ways to create shared value (Porter & Kramer, 2011)?

1. Reconceiving products and markets: Addressing societal needs through products/services.

2. Redefining productivity in the value chain: Improving efficiency while reducing social/environmental impacts.

3. Enabling local clusters: Strengthening surrounding suppliers, institutions, and communities.

What is the circular economy, and why is it important?

An economic system aimed at reducing resource depletion and maximizing value creation by keeping products and materials in use for longer and minimizing waste.

What is a circular business model?

A business model explaining how an organization creates, delivers, and captures value while closing and slowing material loops.

What is the difference between a linear, recycling, and circular economy?

• Linear: Take → make → use → dispose.

• Recycling: Recover materials after use, but waste remains.

• Circular: Design out waste and preserve the value of products/materials through reuse, repair, sharing, and recycling.

How can a business become more circular?

• Rethink products/services across their entire lifecycle.

• Make them durable, renewable, reusable, repairable, upgradable, and recyclable.

• Identify major impacts and opportunities.

• Assess energy, materials, water consumption, and impacts on nature.

What is an example of circular entrepreneurship from the lecture?

The Brussels Beer Project and Maison Dandoy collaboration:

• Broken speculoos biscuits were used to brew beer.

• Brewing by-products (draff/spent grain) were used to make biscuits.

• This created the Tough Cookie product and reduced waste.

What are the seven R-strategies of the circular economy?

• Rethink.

• Reduce.

• Reuse.

• Repair.

• Refurbish.

• Recover.

• Recycle.

What are the main circular business activities mentioned in the lecture? 5

• Recycling and reusing.

• Product-service systems.

• Sharing economy (access instead of ownership).

• Correct use and maintenance.

• Branding that supports circular practices.

What are the four circular strategies illustrated by the R-ladder?

• Narrow the loop: Use fewer resources.

• Slow the loop: Extend product lifespan.

• Intensify the loop: Increase product utilization.

• Close the loop: Reuse or recycle materials.

What is the difference between product-service systems and the sharing economy?

• Product-service systems: Provide value through a service or access rather than only selling a product.

• Sharing economy: Multiple users access or share products, increasing their utilization.

Both can reduce the need for new products and resources.

What are hybrid organizations?

Organizations that combine economic and social objectives, integrating market-based activities with social or environmental missions.

They balance different organizational logics rather than focusing exclusively on profit.

What is the hybrid spectrum (Alter, 2007)? 6

A continuum of organizational forms:

1. Traditional nonprofit (dependent on donations).

2. Nonprofit with economic income (maximizes its mission).

3. Social enterprise (maximizes its social goal).

4. Cooperative (maximizes member benefit/use).

5. For-profit with socially responsible features.

6. Traditional for-profit (maximizes investor profits).

What is the difference between a social enterprise, cooperative, and traditional for-profit business?

• Social enterprise: Prioritizes social impact and reinvests profits toward its mission.

• Cooperative: Prioritizes members' shared needs and benefits.

• Traditional for-profit: Primarily maximizes profits for investors.

How does the EU define a social enterprise?

An organization that:

• Prioritizes social impact over owner/shareholder profit.

• Sells goods/services entrepreneurially and innovatively.

• Uses profits mainly for social objectives.

• Is managed openly and responsibly, involving affected stakeholders.

What are the three key characteristics of social enterprises (Nicholls, 2006; Dees, 1989)?

1. Self-sufficient, without government interference.

2. Market-oriented.

3. Focused on fulfilling social goals.

What is the employment model of a social enterprise (Alter, 2007)?

The social program is the business itself.

The organization creates employment opportunities for its target population while selling goods or services in the market.

What examples illustrate the social enterprise employment model?

• Kringwinkel: Creates employment opportunities through secondhand/reuse activities.

• Les Petits Riens: Combines social aims with reuse and employment-related activities.

• Mo-Clean: Provides sustainable employment in cleaning, bicycle mobility, and employment care for people facing barriers to the labor market.

How is a social enterprise different from a traditional charity?

• Charity: Traditionally depends on donations to achieve social goals.

• Social enterprise: Generates income through market activities and uses it primarily to pursue its social mission.

Both prioritize social objectives, but their funding models differ.

What is a cooperative according to the international definition?

An autonomous, voluntary association of people who meet common economic, social, and cultural needs through a jointly owned and democratically controlled enterprise.

Why are cooperatives considered hybrid organizations?

• Combine market and community logic.

• Generate profits to serve members and/or common goals.

• Are value-driven, member-based, and democratically governed.

• Form part of the social and solidarity economy.

• Can be resilient during and after crises.

What are the four types of cooperatives?

1. Consumer cooperatives: Owned by consumers/users.

2. Worker cooperatives: Owned by employees.

3. Producer cooperatives: Owned by producers supplying goods/services.

4. Multi-stakeholder cooperatives: Include multiple stakeholder groups.

What are the core cooperative values? 6

• Self-help.

• Self-responsibility.

• Democracy.

• Equality.

• Equity.

• Solidarity.

They also emphasize honesty, openness, social responsibility, and caring for others.

What are the seven cooperative principles?

1. Voluntary and open membership.

2. Democratic member control.

3. Member economic participation.

4. Autonomy and independence.

5. Education, training, and information.

6. Cooperation among cooperatives.

7. Concern for community.

What does member centrality mean in cooperatives?

A cooperative exists from, for, and through its members.

Members simultaneously have three roles:

• Users: Transaction relationship.

• Owners: Investment relationship.

• Controllers: Decision-making power.

These roles are connected by shared needs, goals, and identity.

How does democratic control differ between cooperatives and mainstream companies?

• Mainstream companies: Capital determines control — generally one share, one vote.

• Cooperatives: Membership determines control — generally one member, one vote.

The emphasis shifts from invested capital to members' equal participation.

What are the benefits of democratic participation in organizations?

• Shared ownership and responsibility.

• Greater autonomy in decision-making.

• Diverse perspectives and ideas.

• More innovation and creativity.

• Trust, respect, and empowerment.

• Higher member/employee commitment, motivation, and loyalty.

What are the challenges of democratic participation?

• Time-consuming and resource-intensive.

• May reduce decision-making efficiency.

• Diversity and large/dispersed groups complicate participation.

• Meetings, consultation, and consensus-building can create confusion or conflict.

Why can democratic participation still be worthwhile despite its challenges?

• Alternative enterprises prioritize long-term fulfillment of shared needs over rapid growth.

• Skilled leaders can facilitate participation and build trust.

• Democratic participation is a right of every cooperative member.

Why do alternative organizations experience tensions?

Their hybrid nature creates tensions between economic performance and social/environmental missions.

Economic activities can support the mission, but financial pressures can also divert resources away from it.

What is the difference between productive and destructive tensions in hybrid organizations?

• Productive: Economic performance supports the social mission.

• Destructive: Resources are diverted away from social goals, causing conflict or mission drift.

What is mission drift or degeneration in alternative organizations?

When an organization moves away from its original mission and values.

For example, a cooperative may begin behaving like a traditional investor-owned, profit-driven firm.

What are the possible outcomes of poorly managed hybrid tensions?

• Excessive focus on economic performance.

• Excessive focus on social objectives without financial viability.

• Mission drift or cooperative degeneration.

• Financial instability or bankruptcy.

What is the hybridization movement?

The increasing integration of social and financial objectives across organizational forms.

Traditional businesses may adopt social responsibilities, while mission-driven organizations adopt commercial practices.

How can we distinguish genuine alternative enterprises from greenwashing or social washing?

Examine:

1. Purpose: Genuine social/environmental objectives and distribution of surplus.

2. Ownership: Involvement of key stakeholders.

3. Governance: Democratic culture and stakeholder consultation.

4. Impact: Measurement beyond financial results.

What are greenwashing and social washing?

• Greenwashing: Presenting activities as more environmentally responsible than they really are.

• Social washing: Exaggerating or misleading others about social responsibility.

Both can create a false impression of positive impact.

What is the rebound effect, and how can it undermine circular business models?

When efficiency or reuse encourages additional consumption, offsetting environmental benefits.

Example: Vinted may promote secondhand shopping but also encourage people to purchase more clothing overall.

Why have alternative business models not become dominant?

• Limited knowledge of circular, social, and cooperative entrepreneurship.

• Difficulties accessing traditional finance and scaling up.

• Low consumer awareness or motivation (price/access barriers).

• Dominance of economic theories emphasizing growth, competition, and self-interest.

Why might alternative businesses struggle in the current economic system?

They pursue people-centered, long-term goals while competing in markets that often prioritize profit, growth, and short-term financial performance.

This raises the question of whether broader systemic change is necessary.

Under what conditions can alternative business models help solve wicked problems?

• Assess success using long-term goals, not just rapid profitability.

• Remain inclusive and accessible to disadvantaged people.

• Practice genuine democratic governance.

• Receive support from networks and broader social movements.

• Benefit from appropriate institutional support.

Why do alternative business models need supportive ecosystems and institutions?

• Networks help share knowledge and encourage collaboration.

• Institutions influence funding, legal conditions, and opportunities.

• Unequal support creates barriers, such as challenges for housing cooperatives or voluntary work

What are two important risks or misconceptions about alternative enterprises?

• Governments may avoid their responsibilities if social entrepreneurs solve societal problems.

• Alternative enterprises can be wrongly judged as failures because they need longer to become profitable.

Why are entrepreneurial skills and profits still important for social enterprises?

Social missions require financial sustainability. Entrepreneurial skills and sufficient profits help organizations survive and continue fulfilling their social objectives.

What is the key difference between CSR and an alternative business model?

• CSR-oriented for-profit: A conventional profit-oriented business that adopts socially responsible practices.

• Alternative business model: Social, environmental, or member-centered goals are more deeply integrated into how the organization creates value, operates, or is governed.

Can a cooperative also be a social or circular enterprise?

Yes. These categories can overlap:

• Cooperative: Describes ownership and governance.

• Social enterprise: Describes social mission and impact.

• Circular business: Describes how material loops and resource use are organized.

An organization can combine all three.

What is the difference between shared value creation and social enterprise?

• Shared value: Improves business competitiveness while advancing societal conditions.

• Social enterprise: Prioritizes a social mission over maximizing owner/shareholder profit.

The main distinction is the organization's primary purpose.

How can economic success support or undermine a social mission?

• Support: Profits finance social goals and organizational survival.

• Undermine: Financial priorities divert resources from the mission, potentially causing mission drift.

The challenge is maintaining balance.

What are the 10 strategies in the R-ladder (Potting et al., 2018)?

• R0–R2: Refuse, Rethink, Reduce.

• R3–R7: Reuse, Repair, Refurbish, Remanufacture, Repurpose.

• R8–R9: Recycle, Recover energy.

The R-ladder shows that circularity is more than recycling. Strategies that prevent resource use or preserve products generally retain more value.

How does the circular economy differ from recycling in terms of value preservation?

• Recycling: Recovers materials after products have been used.

• Circular economy: Also prevents waste, extends product lifetimes, and maintains products at their highest possible value.

• Reuse, repair, and refurbishment can preserve more value than recycling materials.

What is the difference between a nonprofit with economic income and a social enterprise in the hybrid spectrum?

• Nonprofit with economic income: Earns revenue while prioritizing its nonprofit mission.

• Social enterprise: Uses entrepreneurial market activities to pursue social impact, rather than maximizing owner profits.

• Both combine social goals with economic activities.

What is the difference between the cooperative's core values and its ethical values?

• Core values: Self-help, self-responsibility, democracy, equality, equity, and solidarity.

• Ethical values: Honesty, openness, social responsibility, and caring for others.

Both form part of the cooperative identity.

Why are cooperative members more than traditional shareholders?

Cooperative members simultaneously act as:

• Users: Receive goods/services.

• Owners: Invest in the organization.

• Controllers: Participate in decisions.

They are connected by a common need or goal, rather than only by financial investment.

Why can slower growth in alternative enterprises be misleading when judging their success?

• Alternative businesses often pursue long-term social and environmental goals.

• They may take longer to reach break-even or profitability.

• Traditional growth and profit measures can overlook their wider impact.

• Success should also be evaluated using non-financial indicators.