Business models Halme - 03/12/20151 BUSINESS MODELS FOR MATERIAL EFFICIENCY SERVICES: CONCEPTUALIZATION AND APPLICATION Minna Halme, Markku Anttonen, Mika Kuisma, Nea Kontoniemi & Erja Heino Greening of the Industry Network Conference, Cardiff, July 2-5, 2006

Business models Halme - 03/12/20152 CONTENTS Why business models, why material efficiency? Conceptualization of business model Business models for material efficiency services Potential of the business models

Business models Halme - 03/12/20153 PROBLEMS AND SOLUTIONS Despite the economic, ecological and political incentives, business enterprises do not use resource saving potential to the full Lack of expertise, especially vis-a-vis energy and support materials Low price of many materials The situation opens up business opportunities for service providers that offer material or energy efficiency services Result-oriented services are an unconventional form of business and thus not readily accepted Proponents have concentrated more on technical design of services than development of business models If efficiency instances recognized, still easily omitted if require investment (even if short pay-back time) ?Business models?

Business models Halme - 03/12/20154 BUSINESS MODEL FRAMEWORK What kind of competitive advantage pertains to the (eco-efficient) service, Which benefits can customers derive from the eco-efficient service (in comparison to more traditional ways and means of fulfilling their needs) Which capabilities and other resources does the provider or the network of providers have How is the service financed / financing arrangement (often more complicated than in one-time sales of goods)

Business models Halme - 03/12/20155 BUSINESS MODELS FOR MATERIAL EFFICIENCY SERVICES Management service for material flows Management of selected material group is outsourced to service provider Material efficiency consulting MASCO model provider takes care of the material savings investment project so that client neither invests own funds nor operational resources Material savings as additional service Same but provider offers MASCO-services aside of its core business

Business models Halme - 03/12/20156 EMPIRICAL DATA Interest in and obstacles of material efficiency services 61 thematic interviews & 3 focus group discussions Paper and food companies Waste management companies Retail chain ESCOs Finance institutions Environmental policy makers and regulators

Business models Halme - 03/12/20157 MASCO MODEL Provider is specialised in MASCO projects Customer benefit: Does not tie up client’s funds or operational resources Competitive advantage: customer pays only for results Capabilities: Arranging financing, finding suitable know-how (subcontractors) & finding customers on a regular basis Income flow: From the saving gained from the material efficiency investment Suitable for: Large, one-off projects requiring investment

Business models Halme - 03/12/20158 MATERIAL EFFICIENCY AS ADDITIONAL SERVICE Provider offers MASCO in addition to its main service. E.g. waste mgt firms, maintenance companies, equipment providers Customer benefit: same as previous Competitive advantage: existing contact between provider and customer-> trust and low transaction costs Capabilities: knowledge of client’s processes or part of them Income flow: From the saving gained from the investment, but client simultaneously pays fees for other services Suitable for: Material efficiency improvements that complement the service provider’s main service

Business models Halme - 03/12/20159 MANAGEMENT SERVICE FOR MATERIAL FLOWS Service provider takes over the management of certain material group (e.g. chemicals) Customer benefit: outsourcing non-core operations to a specialist Competitive advantage: more efficient organization of operations Capabilities: profound knowledge of a material/s and its processing Income flow : Charges are based on results instead of paying for material amounts Based on long-term strategic partnerships, e.g. chemical management service

Business models Halme - 03/12/ WHEN ARE MATERIAL SAVING SERVICES APPROPRIATE? Considerable economic savings potential The investment is so extensive that the client company finds it too difficult or time-consuming Pay-back period is more than three years Focuses on a side-stream of production rather than customer’s core business

Business models Halme - 03/12/ Solidity HighLow Specialized MASCOs Firms with multiple product or service offerings (e.g. waste management companies, maintenance firms and equipment providers) Possible Most prominent Possible (Yet only few companies like this exist in the market) Low likelihood Which firms are likely to offer investment-based materials efficiency services? Offering variety

Business models Halme - 03/12/ Firms with no production of the material for which service offered (e.g. AGA gas) Chemical producers Waste management companies N/A Engineering firms Consultancies Which firms are likely to offer services for material flow management? Production or waste management enterprise Service enterprise MFM services do not compete with existing business MFM services compete with existing business

Business models Halme - 03/12/ CONCLUSIONS 3 benefits of material efficiency services –Reduced environmental burden –Cost savings –New business and employment essential for those European economies, which struggle with the loss of manufacturing sector jobs. Global study by Deloitte 2006: profitability of B2B services is up to 75% better than that of manufacturing operations. The most potential business models are –”MASCO as additional service” –”Material flow management service” –These two can also be combined

Business models Halme - 03/12/ CONCLUSIONS Financing questions significant Not all manufacturers necessarily benefit from these services –Companies with abundant funds and/or in- house expertise in material efficiency may be best off doing it alone

Business models Halme - 03/12/ FUTURE REACH and outsourcing trend are likely to accelerate emergence of material efficiency services –Organizations with a strategy of outsourcing support activities and with experiences of it, are more likely to use material efficiency services Mechanisms needed to boost from initial stage –env. permits, VAs, possibility to benchmark material use at industrial sites, env. taxes on selected materials, EMS targets and auditing focus on material efficiency