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Journal of Indian Institute of Management Bangalore

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Creating Sustainable Business Models

Volume 16, Number 4 Article by Peter Wells December, 2004

Creating Sustainable Business Models:The Case of the Automotive Industry :

This paper starts with the premise that in certain critical respects the prevailing business models are inappropriate and inadequate to meeting the challenge of sustainability.It is only through the radical re-design of the prevailing business models that substantial and enduring beneficial change can be realised.However, the twin challenges posed by market changes and the demands for sustainability also highlight the importance of systemic conceptualisations.In particular,there is an intimate causal relationship between such issues as the characteristics of product technology,the industrial processes required to create that product,the structure of the industry that emerges to supply the product,and the business models employed by firms operating in that sector of the economy.

Peter Wells uses the concrete example of the global automotive industry to illustrate the ways in which radical new product technology designed to address environmental and business concerns may also unleash new industry structures and ultimately new business models.The model of the Micro Retailing Factory (MFR),a hypothetical concept developed by the author,connotes sustainability in the economic/business,social and environmental dimensions.The MFR model combines the manufacturing,operation and distribution operations in one entity,with decentralised manufacturing in small volumes,in small plants,and with local distribution units.New products can be introduced incrementally.It provides enhanced customer access to environmentally-friendly products,more closely aligned with their particular needs,along with long-term support.The model promises more varied,interesting and rewarding work along with more stable employment patterns distributed more widely across spatial areas. This would result in stronger worker commitment. The product technology could change terms of competition and provide the basis of a more sustainable business model with a dramatic increase in vehicle longevity.The factory can eventually transform from new car production to a service-and- repair focus and thus have a lower local environmental impact.

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