A strategy for the acceleration of biojet
fuel commercialisation
A N D H O W T O D E V E L O P A C O M P E T I T I V E A D V A N T A G E
University of Groningen Economics and Business Msc Technology Management
Confidential
Martijn RoelfsemaS2054566
martijnroelfsema1@gmail.com
Supervisor University of Groningen: drs. Ing. H.L. Faber Co-assessor University of Groningen: prof. dr. ir. J.M.L. van Engelen
Preface
About one year ago I started as a graduate intern at the Strategy & Innovation department of the Royal Dutch Airlines/KLM to finish my Master Technology Management of the Uni-versity of Groningen. Now, about one year later I present to you the findings of my research on the commercialisation of biojet fuels. Looking back, for numerous reasons it has been a great and challenging experience.
Ever since I have been a student, and also before that time, flying, airplanes and the aviation industry have had a very strong appeal to me. I was therefore filled with excitement after hearing I got a graduate internship at the Strategy and Innovation department of KLM. Dur-ing the internship I was able to collaborate on some great projects which sometimes meant going through stressful situations. Looking back it was a great learning experience and a great experience in general.Therefore I would sincerely like to thank everybody from the Strategy & Innovation department and especially Eileen van den Tweel, Ignaas Caryn and Robert van Halm for providing me with this great opportunity.
Also I would like to thank Mr Henk Faber and Mr Jo van Engelen for providing me with ex-tensive feedback during the entire research process. The structure of guidance was good and the feedback helpful in achieving this result.
Finally I want to sincerely thank my parents for their support during the extended period of time I have been studying.
Martijn Roelfsema November 2013
Management summary
Despite fuel efficiency measures, aviation industry greenhouse gas emissions (GHG) have risen, resulting in a 2% contribution of the commercial aviation industry to worldwide GHG emissions. Additionally, fuel prices are between 30 to 40% of total airline operating costs and with airlines being a price taker, they have almost no control the prices they are being charged for the fuel. Biojet fuels have emerged as an alternative, but its production and consumption is currently constraint.
Royal Dutch Airlines KLM (KLM) has been a frontrunner in developing and deploying biojet fuels. Reducing its GHG footprint and gaining control over one of its largest costs are what drive the company. However before the company can scale up its biojet fuel consumption, a number of barriers need to be overcome. KLM wants to know what constrains biojet fuel commercialisation and how it can aid in overcoming these barriers. The objective for this thesis is therefore as follows: To determine the strategy KLM should adopt in accelerating the commercialisation of the biojet fuels and to determine how KLM can achieve a competi-tive advantage along the way.
Innovations like biojet fuels have the potential to disrupt existing business environments, while at the same time providing numerous opportunities to individual companies. because of the disruptiveness comprehensive models are needed to analyse how companies can survive and benefit from the opportunities presented. In analysing the commercialisation of biojet fuels this Master Thesis distinct three levels of analysis; the macro level focusing on the macro-economic forces that influence how businesses operate. The meso level focusing on how actors interact to create value and how all biojet actors together are performing. Finally the micro level focuses on the individual actor and its role, resources, activities and position.
The analysis of biojet fuels according to this framework revealed that commercialisation is currently hampered because of performance of a number of barriers concerning develop-ments in feedstock production, conversion technology, logistics and financing and invest-ments. Biojet fuels are produced on an ad hoc basis because the barriers prevent fossil fuel cost competitive production.
PREFACE ... 2 MANAGEMENT SUMMARY ... 3 1 INTRODUCTION ... 8 1.1 Research context ... 8 1.2 Research objective ... 9 1.3 Theoretical background ... 10
1.3.1 Formulating the research questions ... 12
1.4 Relevance of the research ... 12
1.5 Thesis outline ... 13
PART I: THEORETICAL FRAMEWORK ... 14
2 THE STRUCTURE OF THE ORGANISATIONAL ENVIRONMENT ... 15
2.1 Strategy and the organisational environment ... 15
2.2 Macro level ... 17
2.3 Meso level ... 17
2.4 Micro level ... 18
2.4.1 Roles ... 19
2.4.2 Activity and resources ... 19
2.4.3 Position ... 19
2.5 Conceptualising the context of innovation ... 20
3 THE DYNAMICS OF THE ORGANISATIONAL ENVIRONMENT ... 21
3.1 The dynamics of strategy ... 21
3.2 Birth phase ... 21
3.3 Growth phase ... 23
3.4 Leadership phase ... 24
3.5 Ecosystem positioning ... 24
3.6 Defining the status of commercialisation ... 24
3.7 The multi-level innovation dynamics model... 25
4 RESEARCH METHODOLOGY ... 27 4.1 Methodological steps... 27 4.1.1 Theoretical framework ... 27 4.1.2 Diagnose phase ... 27 4.1.3 Design phase ... 29 4.2 Data gathering ... 30 4.2.1 Primary data ... 30 4.2.2 Secondary data ... 31
4.2.3 Case studies in the bio based economy ... 31
4.3 Reliability and validity ... 32
5 DEFINING THE BIOJET FUEL ECOSYSTEM ... 35
5.1 Bio-based economy - the playing field ... 35
5.1.1 The aviation industry ... 36
5.1.2 KLM ... 36
5.2 The biojet fuel opportunity ... 37
5.3 The macro environment of the biojet fuel supply chain ... 39
5.3.1 Social/ demographic ... 39
5.3.2 Environmental ... 40
5.3.3 Technological ... 40
5.3.4 Economical ... 40
5.3.5 Political ... 41
5.3.6 Macro level conclusion ... 42
5.4 Micro level analysis ... 42
5.4.1 Micro level developments ... 43
5.4.2 Micro level conclusion ... 44
6 THE STATUS OF THE BIOJET FUEL INNOVATION ECOSYSTEM ... 45
6.1 Entrepreneurial activities ... 45
6.1.1 Status entrepreneurial activities ... 46
6.2 Knowledge development and diffusion: ... 46
6.2.1 Status knowledge development and diffusion ... 48
6.3 Create legitimacy ... 48
6.3.1 Status creating legitimacy... 49
6.4 Guidance of the search and market formation ... 49
6.4.1 Status guidance of the search and market formation ... 51
6.5 Resources mobilization ... 51
6.5.1 Status resource mobilisation ... 54
6.6 Development of positive externalities ... 54
6.6.1 Status positive externalities ... 56
6.7 Meso level conclusion: Status of the ecosystem ... 56
6.7.1 The phase of development of the biojet fuel ecosystem ... 57
6.7.2 Benchmarking the performance of the biojet fuel ecosystem ... 58
PART III: STRATEGIC ROADMAP DESIGN ... 60
7 CASE STUDIES ... 61
7.1 Case 1: Akzo Nobel ... 61
7.1.1 Case introduction... 61
7.1.2 Analysis ... 61
7.2 Case 2: Dong Energy/Inbicon ... 63
7.2.1 Case introduction... 63
7.2.2 Analysis ... 63
7.3 Case 3: The biogas industry in the Netherlands ... 64
7.3.1 Case introduction... 64
7.3.2 Analysis ... 65
7.5 Conclusion ... 67
8 STRATEGIC ROADMAP BIOJET FUEL SUPPLY CHAIN DEVELOPMENT ... 68
8.1 Roadmap architecture ... 68
8.1.1 Time horizons: objectives of KLM ... 68
8.1.2 Layers ... 69
8.2 Roadmap design ... 69
8.3 Validation ... 70
8.4 The strategic roadmap ... 71
8.4.1 2013-2015: feedstock research ... 73
8.4.2 2013-2015: acceleration of ASTM approval ... 73
8.4.3 2013-2015: assist in building an HEFA supply chain ... 74
8.4.4 2013-2015: financing options along the path to commercialisation ... 74
8.4.5 2015-2020: scaling up of logistical processes and chain of custody ... 75
8.4.6 2015-2020: portfolio of projects for commercialisation ... 75
8.4.7 2015-2020: feedstock acquisition ... 75
8.4.8 2015-2020: financial mechanisms for bridging the ‘valley of death’ ... 76
8.4.9 2015-2020: position SkyNRG as a feedstock trader ... 76
8.4.10 2020 and later: focus on efficient and effective supply chains ... 76
8.5 Strategic roadmap conclusion ... 77
8.5.1 Conclusion: roles, activities and resources... 77
8.5.2 Conclusion: position of KLM in the biojet fuel ecosystem ... 77
9 CONCLUSIONS ... 78
9.1 Conclusions of diagnose ... 79
9.2 Conclusions of design... 80
9.3 Reflections on the research ... 81
9.3.1 Practical limitations ... 82
9.3.2 Theoretical limitations ... 82
9.4 Further research directions ... 83
REFERENCES ... 84
Appendix A Overview interviews ... 89
Appendix B Overview attendees validation presentation... 89
Appendix C Extended version of the DESTEP method ... 90
Appendix D Introduction to first – and second generation biojet fuels ... 98
Appendix E Overview of sustainability related risks in the near future ... 100
Appendix F Functions of innovation systems explained ... 100
Appendix G Conceptual model ... 101
Appendix H Introduction of actors at micro level ... 102
Appendix I Feedstock regions globally ... 105
Appendix J World water stress &water footprint of renewable technologies .... 106
Appendix K Overview of new entrants ... 107
Appendix L EU biofuels legislation: Renewable energy directive ... 108
Appendix N Commodity cost comparison ... 111
Appendix O Overview of pathways being approved ... 112
Appendix P Overview of approval process ASTM ... 113
Appendix Q Overview of 12 sustainability principles used by RSB ... 114
Appendix R Extended analysis resource mobilisation ... 115
Appendix S Value network analysis of biojet fuel ecosystem ... 120
Glossary
GHG Greenhouse gas emissions SkyNRG SkyEnergy
HEFA Hydroprocessed esters and fatty acids WWF World Wildlife Fund
1 Introduction
This chapter aims at explaining the context of research, introducing the subject and formu-lating the research questions. The chapter starts with an explanation of the research context after which the objectives for the research are specified. This followed by introducing the literature concerning the research subject and the research questions. Finally an outline of the report is given.
1.1 Research context
Over the last decades, air travel has grown enormously causing the consumption of jet fuel to increase accordingly. Fuel prices soared in recent years and were very volatile, putting pressure on airline profits (see section 5.3.4). Additionally, around 2% of man-made GHG (green house gas) emissions is produced by the commercial airline industry and with the forecasted growth of the industry this will increase to 3-5% in 2050. While other modes of transport can switch to electrification, aviation has no alternative to liquid fuels for the com-ing decades (see section 5.3.3). As a result the airline industry is very aware of the need to reduce its carbon footprint, and it has three opportunities to do so (Ecofys, 2011):
1. Operational improvements (air traffic management) 2. Technical improvements (e.g. weight reduction) 3. Use of biojet fuel
Operational and technical improvements have led to GHG emission reduction but in abso-lute terms the carbon footprint has not been reduced because industry growth more than compensates the improvements. Hence, Biojet fuels are essential in reducing emissions of the aviation industry (Figure 1-1).
One of the European airlines that has already performed flights on biojet fuels is KLM. By taking a leading role in developing biojet fuels KLM hopes to secure a sustainable stable supply of biojet fuel in the future.
1.2 Research objective
The first biojet fuel was produced in the mid 2000’s and since then an industry is emerging. However, these developments are currently hampered. Biojet fuel is at least three to four times as expensive as fossil fuels, making it currently an economically unviable alternative. Airlines play a crucial role in stimulating the development of biojet fuel since other potential stakeholders see the biojet fuel opportunity as too risky.
KLM is currently actively developing the biojet fuel ecosystem By flying on biojet fuel, KLM wants to secure its future license to grow by adhering to the sustainability targets the com-pany set in 2015 and 2020. The comcom-pany has already developed a number of downstream and midstream activities aimed at improving the competitiveness of biojet fuels and reduce the premium (Biojet fuel price per unit – fossil jet fuel price per unit) KLM has to pay when it sources biojet fuels. However, this is not enough. Biojet fuel commercialisation is hampered and KLM wants to investigate how it can accelerate commercialisation of biojet fuels. By acting as a first mover, KLM wants to gain access to and control over its fuel supply. The air-line sees biojet fuels as an opportunity to mitigate its current price taker role in the fossil fuel supply chain. In this light this Master thesis is carried out at KLM based on the following problem statement:
To attain its sustainability targets in the near future, KLM has been a frontrunner in the de-velopment and commercialization of biojet fuels. Currently however the rate of dede-velopment is slow, resulting in a large price premium (compared to fossil jet fuel) to be paid by airlines consuming biojet fuels. Considering that fossil fuel costs already make up 30% of total costs, flying on biojet fuels is technically feasible and sustainable but not economically viable at the moment. However, in order to attain these sustainability targets moving from fossil fuels to bio fuels is the only option. Also on the longer term when biojet fuels become competitive with fossil fuels, KLM does not want to end up in the position where it is now in the fossil fuel chain, which is being a price taker.
This problem statement is translated into the following objectives:
1. To determine the strategy KLM should adopt in accelerating the commercialisation of the biojet fuels
2. To determine how KLM can achieve a competitive advantage along the way
1.3 Theoretical background
Literature describes the process of bringing an innovation to the market as the commerciali-sation process. Geels (2006) distinguishes four types of innovations:
Incremental innovations Radical innovations
Changes in the technology system
Changes in the techno-economic paradigm (TEP)
Incremental innovations occur more or less continuously and often only involve the innovat-ing company itself. Radical innovations on the other hand are described as discontinuous events, serving as a springboard to launch into new markets (Geels, 2006). These two inno-vation types concern innoinno-vations with short time scale and limited consequences for econ-omy and society. Changes in technology system and TEP describe innovations with a longer time scale and on an aggregated level. Consequences of these types of innovations exceed the firm and dyadic level also influencing the meso and macro levels of the organisational environment. Differentiating between these innovation types, shows the importance for an organisation to understand what type of innovation they are dealing with, since this has large consequences for the commercialisation strategy to be adopted. (Walsh, 2012).
One the major changes in techno-economic paradigm currently going on in the world is the change from an economy based on fossil energy sources towards an economy based on sus-tainable energy sources. This sussus-tainable development are, According to Rotmans (2003), characterised by the following aspects: (1) a long time span is needed (2) affecting different levels of scale (3) the economical, environmental and social cultural aspects are pivotal and should be in balance. The transition of the airline industry towards biojet fuels can therefore also be classified as a TEP innovation. Developing a commercialisation strategy for a renew-able technology therefore requires the multi faceted approach, which should include all relevant stakeholders. This means the research should not focus solely on firm level but on all levels of the organisational environment to develop a strategy for commercialising biojet fuels (Lewin & Volberda, 1999).
The degree to which an organisation can capitalise on the products it has commercialised depends on the value proposition it offers to the customer. The value proposition is the unique mix of value, often performance and cost, offered to the customer by a product or service. According to Porter achieving this unique mix of value is the goal of strategy (Porter, 1985). According to Hambrick & Fredrickson (2001) strategy is:
The central, integrated plan of choices of how an organisation will achieve its objectives. Combining these two reveals that strategy is the plan of choices that creates the value needed to deliver a unique mix value to the customer.
per-formance of a new job, task, product or service and exchange value is the monetary amount realised at the moment in time the job, task, product or service is exchanged. Based on this value creation is conceptualised as the amount of value subjectively allocated by a user or buyer who is the focus of the value creation (Figure 1-3).
Figure 1-2: value defined (Lepak, 2007) Figure 1-3: value creation process (Lepak, 2007)
These definitions of value and value creation only hold under the two following conditions: The monetary amount exchanged should at least exceed the producers cost in creating
the use value exchanged.
The monetary amount exchanged at the transaction is dependent on use value created by the focal product or service and its next best alternative.
1.3.1 Formulating the research questions
Based on the research objective described above in section 1.2 and the literary context, the research question is formulated as:
What strategy should KLM adopt to accelerate biojet fuel commercialisation and how can the company develop a competitive advantage along the way?
In order to answer the main question a number of research questions are devised to get a more detailed view on specific aspects of the research question. The research is split in a diagnose phase and a design phase. The sub questions for the diagnose phase are:
1) How does the macro environment influence commercialisation of biojet fuel? 2) What is the state of development of individual actors currently?
3) What state of development is the biojet ecosystem currently in? 4) What are the barriers for further development?
The sub questions for the design phase are:
5) What learning’s can be drawn from strategies deployed by companies in other emerging bio industries?
6) Role
a) What role should KLM adopt to accelerate commercialisation? b) What role should KLM adopt to achieve a competitive advantage? 7) Activities
a) What activities and resources should KLM deploy to accelerate commercialisation b) What activities and resources should KLM deploy to achieve a competitive
advan-tage 8) Position
a) What position should KLM adopt to accelerate commercialisation? b) What position should KLM adopt to achieve a competitive advantage?
1.4 Relevance of the research
1.5 Thesis outline
This Master thesis starts with an introduction to the research subject, a short description of the relevant theory and the formulation of the research questions. This is followed by the theoretical framework in chapter 2 and 3. Here a theoretical perspective of subject to be researched is explained providing a basis for the methodology, explained in chapter 4. Chap-ter analyses both the macro and the micro level of the organisational environment, hereby answering sub questions 1 and 2. In chapter 6 the analysis of the meso level is presented, providing the answer to sub question 3 and 4. In addition to researching the biojet fuel in-dustry, also three case studies are performed. These are analysed in chapter 7, hereby pro-viding the answer to sub question 5. Finally in chapter 8 all accumulated knowledge is trans-formed into a strategic roadmap, showing the activities and resources to be developed by KLM in the coming ten years. Answers to sub questions 6, 7 and 8 are given here.
Part I: Theoretical Framework
The backbone of this research is Part I. It consists of the theoretical framework and meth-odology (Figure 1-5). Part I provides the theoretical perspectives and important definitions that are needed to analyse strategy. Once the theoretical playing field has been defined, the methodology will be explained. For this the theoretical framework will serve as a basis.
2 The structure of the organisational environment
The theoretical framework of this Master thesis consists of two chapters in which theoreti-cal perspectives are explained and concepts are defined and operationalised. The objective of this theoretical framework is to develop a model of the organisational environment, which serves as the backbone of this Master thesis. The chapter will start by introducing strategy and the organisational environment followed by a description of the separate levels of the organisational environment.
2.1 Strategy and the organisa tional environment
Strategy is one of the most important concepts within academic business literature because it is inherently linked to the survival of organisations (Lewin & Volberda, 2001). One of the most important contributions to strategy literature in the 90’s was the resource based view theory (RBV) which combines strategy and value concepts to explain how a competitive ad-vantage can be developed (Barney, 1991). It assumes that the key to a competitive advan-tage are the resources that lie within the boundaries of the firm. Over time however, schol-ars have come to realise that organisations base their strategy on the organisational envi-ronment rather than the micro level (firm level) alone (Lewin et al., 1999; Lewin & Volberda, 2003; Hynes & Wilson, 2012). All levels of the organisational environment interact with each other which means that organisations should also look to other organisations and marco-economic forces, instead of solely focusing on internal activities and resources (Figure 2-1). This insight over the years has led to a new view of analysing strategy, resulting in a tripart model consisting of the following levels (Lewin et al., 1999; Jacobsson & Johnson 2000; Phaal et al., 2004):
Macro level (General environment) Meso level (Business ecosystem) Micro level (firm level)
Each of the three levels is further explained below. According to Lewin (1999) causal direc-tions exist between certain levels. The business ecosystem can thus influence the firm level and the other way around.
Additionally both the business ecosystem and firm level are influenced by the general envi-ronment so when a firm is designing a strategy it should include both the meso level and macro level in its analysis.
In section 1.3, strategy is defined as the central, integrated pattern of choices of how an organisation will achieve its objectives. This definition refers to a pattern of choices which is operationalised here based on the ARA model (Actor, Resources and Activities) (Allee, 2008; Jaakola & Haakanen, 2013). Resources and activities are at the basis of value creation which lies at the basis of strategy and competitive advantage. But since this Master thesis argues strategy to be based on the organisational environment, strategy goes beyond just re-sources and activities. Depending on the objectives and the rere-sources owned a focal organi-sation can position itself beyond its boundaries and assume other roles to attain the re-sources and activities needed for to fulfil its organisational objectives. Therefore role and position are also included in the operationalisation of strategy. This research hence defines strategy as the integrated pattern of choices involving the role, resources, activities and po-sition of an organisation to achieve its objectives. Each aspect of this definition is further explained in section 2.4.
Section 1.3 already mentioned that competitive advantage is about creating more value compared to the competition. McGee et al. (2005) define a competitive advantage as: Delivering superior value to customers and in doing so earning above average return for the company and its stakeholders
The RBV argues resources need to be valuable, rare, imperfectly imitable and non-substitutable to result in a competitive advantage (Barney, 1991). However, as with value creation and strategy, also a CA is dependent on value creation beyond the focal firms boundaries (Amit & Zott, 2001). In this multi-level view of competitive advantage, Amit & Zott (2001; 2010) have identified four value creation sources facilitating the creation of a competitive advantage (Amit & Zott, 2001; Amit et al., 2011):
Novelty refers to adoption of new activities or the way in which these activities are linked or the choice of governing mechanism.
Lock-in is about performing the kind of activities that keep customers from switch-ing to the competition.
Complementarities are created when the bundling or grouping of activities within a network is providing more value than running the activities separately
2.2 Macro level
The highest aggregation level distinguished in this research is the macro environment level, which is defined as:
(…) The set of external conditions that shapes the playing field for organisational value crea-tion (…) (Jones, 2010).
This set of external conditions is also called the landscape and is a set of heterogeneous forces defining the environment in which organisations operate (Geels, 2006). The general environment is beyond the direct influence of organisations and cannot be changed at will (Geels, 2006). Within this level, actors innovate, businesses evolve and markets are created and destroyed. Literature has provided a number of tools to analyse these forces in a struc-tured way (Jones, 2010). The DESTEP method structures the macro level by distinguishing the following six forces:
Demographic Economic Social Technological Environmental Political 2.3 Meso level
Looking at the meso level of the organisational environment shows how companies interact with each other through setting transactions. Often a transaction involves the exchange of money, products or services, information and governmental policy (Peppard & Rylander, 2006). This form of interaction is crucial for the meso level since it allows companies to lev-erage the value that is created through the utilisation of activities and resources.
The meso level represents a collection of heterogeneous subsystems that interact with each other to generate diffuse and utilise a certain technology (Geels, 2006). These subsystems can be technology, infrastructure, regulation, supply networks and cultural meaning and literature often refers to the collection of subsystems as a socio-technical system (Geels, 2006) Performance of the meso level as a whole is thus dependent on the individual and collective performance of these subsystems and this needs to be assessed (Hekkert et al., 2007).
Traditionally the value chain concept was used to analyse the meso level, but it assumes relationships between organisations are linear which is no longer sufficient to analyse value creation in today’s business environments. (Fjeldstadt & Ketels, 2006). New frameworks to analyse value creation like value network and business ecosystem have emerged since (Peppard & Rylander, 2006; Hekkert et al., 2007).
The business ecosystem concept allows is the approach used for this thesis (Moore 1993, 1996). It sees value creation and business in genera as a product of a heterogeneous group of organisations (Geels, 2006). It is defined as:
organizations also include suppliers, lead producers, competitors, and other stakeholders. Over time, they co-evolve their capabilities and roles, and tend to align themselves with the directions set by one or more central companies. Those companies holding leadership roles may change over time, but the function of ecosystem leader is valued by the community be-cause it enables members to move toward shared visions to align their investments and to find mutually supportive roles (Moore, 1993)
Figure 2-2: business ecosystem with value networks (Iansiti &Levien, 2004)
The definition of Moore refers to the concept of co-evolving, which implies ecosystem emergence start and evolve over time. Changes in a technology economic paradigm often require new ecosystems to be constructed. This process can take decades and require a solid strategy. To determine in what state of development such an evolving ecosystem is, the functions of innovations system framework was developed (Hekkert et al., 2007). Ac-cording to the functions of innovation ecosystems framework (FOIS) performance can be determined based on six functions (see Appendix F) (Alkemade et al., 2007; Hekkert et al., 2007; Suurs et al., 2010). These activities represent crucial activities to be performed by the meso level in order to be sustainable over time. The functions are the following:
1. Entrepreneurial activities
2. Knowledge development and diffusion 3. Create legitimacy
4. Guidance of the search and market formation 5. Resources mobilization
6. Development of positive externalities
By assessing these functions for a certain ecosystem, individual companies can assess what they should focus on in commercializing the product or service brought forward by the busi-ness ecosystem.
2.4 Micro level
The micro level refers to the level that describes the firm level of the organisational envi-ronment. It consists of actors and its attributes. Actors are the components of business (Jacobsson & Johnsson, 2000; Geels, 2006). An actor is defined as:
The ARA model describes actors as having two attributes; activities and resources (Jaakkola & Hakanen, 2013). Utilisation of resources and executing activities gives actors a certain role and position within the business ecosystem (Cloodt et al., 2012; Strory et al., 2013).
2.4.1 Roles
The adoption of roles by actors within an ecosystem has not had significant attention in lit-erature (Vanhaverbeke & Cloodt, 2006). Litlit-erature that does exist, often classifies actors based on the type of activities (Alkemade et al 2007; Jaakola & Hakanen, 2013). This how-ever fails to recognise that actors can have multiple roles and disregards the dynamical as-pects of roles. Story et al., (2011) argue each phase of business ecosystem development requires different roles and competences. Klerkx & Aarts (2013) argue roles are adopted based on the barriers present. In addition, a number of authors identify the central firm, network orchestrator or hub firm as an important role in business ecosystems (Maula et al., 2006; Vanhaverbeke & Cloodt, 2006; Klerkx & Aarts, 2013). Actors adopting this role often take a progressive approach because of the opportunity they see, which is also clearly out-lined in the definition of business ecosystems (Moore, 1995).
2.4.2 Activity and resources
An activity is defined as the engagement of human, physical and/or capital resources of any party to aid in the commercialisation (Jaakkola & Hakanen, 2013). Bringing products to the market often requires a set of value creating activities i.e. an activity system, which is a set of resources and activities gathered to create the value needed to commercialise a product or a service (De Martino & Morvillo, 2008; Amitt & Zott, 2011). Porter (1985) argues the system of activities is what generates the unique mix of value.
Resources are the input for the value creating activities and can be a crucial driver of firm competitiveness. The Resource Based view (RBV) suggests firms are successful because they are owners of scarce and firm specific resources (Teece et al., 1997). In general, resources are classified as: Human resources, financial resources and capital resources.
2.4.3 Position
As has been stressed already, the key to value creation in business ecosystems is the access to resources and activities, located beyond focal boundaries (Lepak, 2007; Moller & Rajala, 2007; Moller & Svahn, 2009; Jaakkola & Havanen, 2013). Through interactions and transac-tions with other actors, resources and activities can be combined, exploited, modified or transformed to create more value which can then be shared among the relations (Van-haverbeke & Cloodt, 2006; Biem & Caswell, 2008; Story et al., 2011)
Achieving this means a focal actor should go beyond its boundaries and define its position in the network (Santos & Eisenhardt, 2005; Cloodt et al., 2012; Jaakkola & Hakanen, 2013). This thesis conceptualises ecosystem positioning as:
Cloodt et al. (2012) empirically proved actors can significantly benefit from its network posi-tion and it can even result in a competitive advantage. The degree to which this is possible depends on:
Possession of pioneering technology Partnership portfolio size
Alliance organisation type
Network positioning can significantly influence value creation and is therefore crucial in forming a commercialisation strategy
2.5 Conceptualising the context of innovation
This chapter focused on conceptualising the structure of organisational environments. The chapter results in clear definition and structure of the organisational environment, which will be used to set the diagnose of the business ecosystem under consideration. A distinc-tion is made between the following three levels:
General environment Business ecosystems
Actors - Roles, activities, resources and position
The general environment constitutes the pallet of external conditions that cannot be di-rectly influenced or controlled by actors. These forces, like economic growth or stringent governmental policies, influences the behaviour of the meso and micro level.
Business ecosystems are what make up the meso level. It describes the economic commu-nity active in bringing certain product to the market. Multiple business ecosystems do exist and these can influence each other when mutual objectives exist. This thesis defines the micro level to be the individual actor and its roles, activities and attributes. Individual actors position themselves through partnerships or alliances, to create value jointly with other ac-tors in the ecosystem.
3 The dynamics of the organisational environment
The preceding chapter explained the structure of the organisational environment by distin-guishing between the macro, meso and micro level. This chapter focuses on the dynamic aspect of the organisational environment and how strategy relates to this. Depending on the state of the organisational environment and phase of commercialisation of the business ecosystem, organisations should behave differently. The objective of this chapter is to pro-vide an overview of the phases of development of a business ecosystem and the activities organisations should develop to accelerate business ecosystem development.
3.1 The dynamics of strategy
While the preceding chapter highlighted the structural aspect of value creation, there is also a dynamic aspect to value creation, as depicted by the definition of business ecosystems of Moore (1995, 1996). In the phases from ecosystem emergence to market competition, ac-tors need to make different choices to influence value creation and the formation of com-petitive advantage. This Master thesis conceptualises the business ecosystem emergence to market competition through three different phases (Hynes & Wilson, 2012):
Birth phase Diffusion phase Leadership phase
3.2 Birth phase
The first phase in the growth of a business ecosystem is the birth phase, constituting the emergence of new business ecosystems. This often is the result of a combination of new market needs and external pressures, technology competence and corporate interest (Brem & Voigt, 2009; Suurs, 2009, 2010). Geels (2006) characterises this phase as fluid with limited stability while Meyer et al. (2005) use field wide flux, convergence, emergence and collapse as typologies for the birth phase of innovation ecosystems. What researchers agree upon is the uncertainty and risks of the technology behind the new ecosystem and weakness or even lack of technological and institutional infrastructures to support it (Suurs et al., 2010). The main dynamic for the early entrant(s) of the ecosystem is co-construction (Geels, 2006) and shaping (Maula et al., 2006; Klerkx & Aarts, 2013). This means heterogeneous actors need to be aligned into a working configuration to start constructing the value needed to compete or overtake the incumbent substitute in the future. In doing this, co-constructing actors should focus on structuring the ecosystem for maximal value creation (Vanhaverbeke & Cloodt, 2006).
and will most likely drive the ecosystem into certain direction. Governments and institutions also play an important role in this early phase since the incentives provided by the emerging ecosystem are often not sufficient to attract incumbents. Governments, governmental agencies universities and others are driving the developments through mandates and incen-tives and shape the institutional dimension along the way (Story et al., 2011).
Sense making The capability of an actor to perceive and interpret the emerging busi-ness landscape.
Focusing and selecting The ability to select value information from vast amount of data and fo-cus thus to spur application development
Table 3-1: birth phase activity definitions (Corsaro et al., 2012)
Ecosystem positioning is crucial in this phase because, first of all, ecosystem positioning al-lows a leading actor to align heterogeneous actors into a value creating system allowing actors to start acquiring their strategic objectives. Second of all ecosystem positioning allow actors to accumulate knowledge and learn about new and emerging technologies, which is increasing their sense making ability and increases the chance of selecting the right concept to bring to the market (Moller and Svahn, 2009). The uncertainties surrounding these con-cepts results in risk averse behaviour concerning the type mechanisms used, resulting in weakly linked partnerships which can be easily terminated once viability is proved to impos-sible (Maula et al., 2006; Moller & Svahn, 2009).
Firms entering the ecosystem this phase are often well aware of the advantages this could give in the future. While these early entrants cannot achieve a competitive advantage in this phase, they can start constructing it. By adopting a central position in the ecosystem, lead-ing actors can build a portfolio of partnerships givlead-ing access to resources and activities which over time can provide a basis for the formation of a competitive advantage. This however requires the weak partnerships to be transformed to be a good basis for a com-petitive advantage.
3.3 Growth phase
The diffusion phase is the phase in which the basis for growth is formed. After a fluid and uncertain birth phase, the ecosystem is now solidifying, caused by the increasing number of actors and technological improvements. As networks grow, different poles may be formed causing a clear distribution of labour (Callon et al., 1992). Actors become more specialised and more fixed in their position in the ecosystem.
The main dynamic for the diffusion phase is therefore co-evolution (Lewin et al., 1999; Vol-berda & Lewin; 2003; Geels, 2006; Murmann, 2013). In the past decade, literature has moved beyond the notion of explaining strategy and competitive advantage as a product of of one single theory like the Resource Based view (firm level) or the resource dependence theory (dyadic). Firms evolve and co-evolve with their ecosystems and general environ-ments (Hynes, 2009). Co-evolution is described as the simultaneous development of organisa-tions, alliances and the environment independently and interactively (Das & Teng, 2001). This fits perfectly with the structure of the organisational environment delineated in the preceding chapter, and allows for the most comprehensive analysis and explanation of strategy and competitive advantage formation.
In the diffusion phase, all crucial actors have been mobilised and the ecosystem is starting to grow substantially. According to Moller & Svahn (2009) at the micro level this translates into two activities; agenda setting and net mobilisation. Agenda setting refers to creating and communicating an agenda for the development and deployment of a certain technol-ogy. This can be in the form of a strategic roadmap which quantifies the technologies and resources over time to bring certain products to the market. Net mobilisation is about the process of actually gathering the resources needed to bring the products to the market in the most competitive way.
Ecosystem positioning plays a crucial role here since many of these resources and activities are located beyond the boundaries of the focal actor.. Gathering a portfolio of partnerships through positioning allows a focal actor share risks, pool complementary skills, access a va-riety of market and technologies and speed product to market time (Maula et al., 2006; Cor-saro et al., 2012).
3.4 Leadership phase
The leadership phase constitutes a solidified ecosystem in which all actors have specialised and roles and activities have been defined. These positions are far from fixed because tech-nology has matured causing risk to be low. The ecosystem is still growing through entrance of late arrivals and the ecosystem is now in the state of market competition meaning the technology and its forthcoming products are competitive with the incumbent substitute or it has been overthrown.
Co-evolution is still the main dynamic at meso level but it has an incremental nature (Callo-net al., 1992; Geels, 2006). Developments are ongoing and mainly focused on efficiency since technologies have matured and actors have specialised. According to Moller and Svahn (2009) the main activities for a focal actor in this phase should be demand and supply net mobilisation and net management. The first refers to choosing a position as such that the product offering is completed in the most efficient way. Net management on the other hand refers to the efficient governance of the partnership portfolio. Depending on the type and amount of partnerships, this can be a substantial effort (Moller & Svahn, 2009).
Partnership formation is based on transaction cost economics (TCE) in this phase. TCE helps actors make the right decisions about outsourcing or internal assimilation (Santos & Eisen-hardt, 2005). Joint ventures, alliances and also large scale acquisitions are the mechanisms of choice (Maula et al., 2006). This directly relates to the formation of competitive advan-tage. Every activity and resource acquired is aimed at increasing efficiency. The other three mechanisms described by Amitt & Zott can aid in this. Creating complementarities through alliances can increase the efficiency of a product offering while acquisitions can lock-in cer-tain resources to create value solely for the focal actor.
3.5 Ecosystem positioning
Literature stresses a network position is dynamic by nature (Cloodt et al., 2012; Jaakkola & Hakanen, 2013). Research showed organisations in stable, frozen environments were using the efficiency and identity conception to re-position (Callon et al., 1992). In dynamic envi-ronments, such as the birth of innovation ecosystems, on the other hand the power and competence conception are more likely to be the rationale for creating partnerships. How-ever many authors agree more research is needed in which type of partnership fits a certain phase in the emergence of the ecosystem (Vanhaverbeke & Cloodt, 2006; Corsaro et al; 2012). Cloodt et al. describe a network position can lead to power, reputation, early adop-tion of innovaadop-tion and innovaadop-tion performance. While it is assumed, the structural aspect is easy to determine along the emergence to market competition continuum, current research lacks an understanding of the dominant logic for using a certain type of boundary manage-ment mechanism at a certain point in time (Vanhaverbeke & Cloodt, 2006; Santos & Eisen-hardt, 2009).
3.6 Defining the status of commerci alisation
innova-tion system (FOIS) framework is explained. According to Bergek et al. (2008) this framework shows how the ecosystem is functioning, but this does not say anything about how well it is functioning. Bergek et al. (2008) highlight two bases in assessing the relative ecosystem per-formance: (1) the phase of development of the ecosystem and (2) ecosystem comparison. Because determining relative performance is one of the current challenges in ecosystem research, both bases should be used to balance each other’s weaknesses (Bergek et al., 2008). The phase of development base determines performance based on comparing the functions of the innovation system under consideration with descriptions of the phases as explained in the preceding sections. This method is arbitrary and depends heavily on the researcher. The other base, ecosystem comparison, tries to define performance by compar-ing the focal ecosystem to the existcompar-ing ecosystem. This benchmark method can be based important value drivers and is therefore simpler than the first base. However, when dealing with TEP innovations often there is no benchmark. This makes ecosystem comparison al-most impossible.
3.7 The multi-level innovation dynamics model
From emergence to market competition
Birth phase Diffusion phase Leadership phase
M
ac
ro
DESTEP Demographic Technological Economic Social Environmental Political
M
es
o
Main dynamic Co construction Co-evolution (radical) Co-evolution (incremental) and consolida-tion
functions 1. Entrepreneurial activities
2. Knowledge development and diffusion 3. Create legitimacy
4. Guidance of the search and market formation 5. Resources mobilization
6. Development of positive externalities
Ecosystem per-formance
Low Mediate Competitive
M
ic
ro
Role Connecting Integrating Endorsing
Activity Sense making
Focusing and selecting Experimenting
Agenda setting Net mobilisation
Infrastructure construction
Network management
Demand and supply network mobilisation
Competitive advantage
Novelty Lock-in Complementarities Efficiency
4 Research methodology
This chapter presents the research methodology. The research can be characterised as an explorative, qualitative research which is design driven. This means that the research meth-odology is aimed at creating knowledge which in the end is used to formulate a design that attains the research objectives. The first section explains the methodological steps taken and the second section explains how the data is gathered. The final section covers the re-search reliability and validity.
4.1 Methodological steps
In order to structure the research it is divided into three phases; theoretical framework, diagnose and design according to the DOV approach (de Leeuw, 2000) (Figure 4-1). Below per phase the methodological steps taken to answer the research questions are explained.
Figure 4-1: Research design
4.1.1 Theoretical framework
The structural and time dimension distinguished by the theoretical framework have been analysed using the online libraries EBSCOhost Complete, Science Direct and Google Scholar. Actor Network theory, socio-technical systems and the multilevel perspective served as the basis for defining the structure of business ecosystems. For the dynamic direction on the other hand, innovation system, functions of innovation systems, value creation and value capture literature was used. Important scientific journals consulted are Technovation, Tech-nological Forecasting and Social Change and Energy Policy.
4.1.2 Diagnose phase
the range of applications or markets need to be made. This Master thesis will include this analysis under the macro level part.
Figure 4-2: Methodological steps and research methods for diagnose phase (based on Bergek et al., 2008) Macro level
As explained in the theoretical framework, the macro level comprises the forces that influ-ence what a company strategy will eventually look like. The PESTED framework will be used to map this level of the organisational environment by assessing the key factors as formu-lated by the framework.
Micro level
According to Bergek et al. (2008) the components of the ecosystem need to be defined be-fore further analysis is possible. A comprehensive stakeholder analysis provides insight in all the components of the ecosystem. Furthermore, for each actor the roles, activities and re-sources are defined according to the framework explained in section 2.4. Based on the stakeholder analysis the meso level can be analysed and insight in the lack of certain roles, activities and/or resources can surface.
Meso level
The meso level or business ecosystem level is analysed from a static as well as a dynamic perspective. The static perspective will focus on the transactions within the biojet fuel eco-system. A value network analysis will be performed to create the insights on transactions and value creation. Multiple types of transactions exists and this thesis analyses the follow-ing:
Cash
Product/service
Knowledge/information Policy
To be able to define the status of biojet fuel commercialisation unambiguously, also a dy-namic analysis is needed. The function of innovation ecosystem framework was developed to aid in determining the phase of a development an innovation is in (Hekkert et al., 2007). This framework aims at ascertaining to what extent certain processes and functions are be-ing fulfilled by the ecosystem. Together the static and dynamic analysis allow to researcher to make a judgement about the status of commercialisation of biojet fuels.
Barriers and opportunities
According to Klerkx & Aarts (2013) the choice of roles a company adopts should be based on the barriers present to the organisation achieving its objectives. For this reason the diag-nose concludes with:
The barriers and opportunities to biojet fuel commercialisation. The status of development of the biojet fuel ecosystem.
This diagnose is based on the FOIS framework and the emergence to market competition model presented in 3.7.
Together with the diagnose, the barriers and opportunities are the basis for the final design, which are classified based on a number of subsystems. Business oriented design driven re-search relies on distinguishing the crucial subsystems which together are crucial for the per-formance of the system as a whole. The choice of subsystems is made in section 6.7.
4.1.3 Design phase
Business oriented design driven research aim to create a design of a system that is able to produce a certain product or service and which ability to adapt to a changes in the organisa-tional environment over time (Florusse & Wouters, 1991). The objective of this thesis fits this definition perfectly since the organisational environment is constantly changing and the strategy to be design here is aiming to, eventually, produce biojet fuels in an efficient and effective way. This thesis aims at designing a strategy, in the form of a strategic roadmap, for KLM based on the knowledge accumulated. This is done through the following struc-tured approach:
1. Design method
2. Design and selection criteria 3. Draft strategic roadmap 4. Validation
5. Strategic roadmap Design method
com-mercialisation. The researcher formulates a number of design and selection criteria for each of the dimensions, and to which each individual choice should adhere. With the diagnose, the multilevel dynamics model and the criteria as input the researcher designs a draft stra-tegic roadmap which is validated as explained below.
Design and selection criteria
The design and selection criteria are selected to make an involuntary decision on which choices should be included in the roadmap and which not. Since grasping some of the con-cepts used in the criteria might be difficult in this stage of the report, the criteria are summed in 8.2.
Validation
The validation step is included to provide the researcher the opportunity to check the re-sults of the research with other experts and improve the quality of the research accordingly. The validation step constitutes two meetings:
1. Meeting with the Director biojet fuel of KLM
2. Validation presentation for biojet fuel stakeholders within KLM An overview of the attendees at this presentation is given in Appendix B. Strategic roadmap
The draft strategic roadmap is researcher induced based on the accumulated knowledge. based on the validation the final roadmap is presented. The process of designing the strate-gic roadmap is explained in chapter 7.5.
4.2 Data gathering
Using the research methods described above requires input in the form of data which needs to be gathered by the researcher. The two types of data used are described here.
4.2.1 Primary data
Here the primary data sources are explained. Primary data need to be collected and refined before it can be of use for the research.
Semi-structured interviews
The main form of data gathering is the interview in its semi-structured form. Since explora-tion of the problem and its context is needed before it can be thoroughly understood, the semi structured approach interview type of choice. This allows the researcher to adapt dur-ing the interviews and in between interviews accorddur-ing to his understanddur-ing of the subject matter. In the diagnose phase, 20 interviews were held with stakeholders and industry ex-perts (see Overview interviews Appendix A).
4.2.2 Secondary data
Secondary data is data which already has been collected and refined for a different purpose or research and is reused for another research objective.
Industry reports methodology
Because the scope of this research encapsulates the complete biojet fuel industry and mar-kets, also a large number of industry reports is used. Hereby an in-depth view on some spe-cific topics is obtained. Also the DESTEP analysis is based on a large number industry reports about macro-environmental developments. Information is given a code using the DESTEP factor followed by the specific topic, and is consolidated accordingly.
4.2.3 Case studies in the bio based economy
The case studies are an important form of data gathering within this master thesis and are therefore explained separate. Literature has shown that case study research is relevant for investigating practises in related industries to be used in other companies (Handfield & Melynk, 1998). Stuart et al. (2002) stress the importance of case study research when how or why questions are posed.
Step 1: case research question
The case studies performed here form an integrative part of this thesis and will give an an-swer on sub question three. By investigating organisations in other markets examples of efforts to commercialise bio-based products can be extracted, giving the cases a didactic role. The questions for these case studies are:
What are the drivers for value creation? What are the inhibitors for value creation?
What strategies are used to accelerate value creation?
Step 2: case selection
Selection of the cases can be a problem because the sample often exists out of a small amount of observations. This makes it difficult to find a sample, which is representative for its population (Stuart et al., 2002). Since many of the bio economy markets are still in their nascent state the population to choose from is relatively small compared to matured eco-systems. The selection of cases is done according to the following selection criteria.
Organisations need to be active within the bio-economy. Organisations should have formed a number of partnerships. Organisations are incumbents.
Case study Company End user market
1 Akzo Nobel Bio chemicals
2 Dong Energy Bio fuels
3 The Dutch bio gas industry Bio energy Table 4-1: overview of the case studies
Step 3: data gathering techniques
Data gathering is done through semi-structured interviews. For an explanation see section 4.2.
Step 4 & 5: analyses and conclusions
The results of each case are carefully analysed and this followed by a cross case analysis from which a conclusions are drawn.
4.3 Reliability and validity
In the event of using scientific methods a clear statement on the quality of the research is imperative. How to assess the quality depends however on the methods used. According to Rohrbeck (2011) quality of the research should be determined based to the following fac-tors:
Reliability: shows that the research can be repeated with the same result
Construct validity: the degree to which the operational measures are suitable for representing the subjects of research
External validity: the degree to which the results of the study can be generalised. In ensuring the quality of the research in terms of reliability, three factors are of impor-tance; the researcher, the interviewee and the research procedure. A well-documented search procedure is imperative to the reliability of a research. For this Master thesis the re-search procedure is documented in the methodology. Also the data gathered is analysed through a standardised Excel sheet and interviews were semi-structured and prepared in advanced by formulating a number of standard questions which were used for all interview-ees. This use of semi-standardised templates for the interviews also aids in reducing the chance of researcher error (Rohrbeck, 2011). From the side of the researcher this at least ensures more or less the same questions would be asked. On the other hand, interviewees might be biased possibly resulting in faulty conclusions. By interviewing experts in the field from both the public and private sides of the sector interviewee data can be triangulated, reducing the chance of interviewee bias.
Part II: biojet fuel environment & ecosystem
Part II is the analysis phase and its objective is to set the diagnose for the problem ad-dressed in the main research question (Figure 4-3). The analyses of the data gathered as explained in part I and hereby answering subquestions 1 to 4, is the main objective of this Part.
5 Defining the biojet fuel ecosystem
At the core of the analysis lies the biojet fuel ecosystem. This is the economic community in which resources are developed and activities are undertaken with the goal to commercialise biojet fuels. The first objective of this chapter is therefore to define the ecosystem. The op-portunities provided by flying on biojet fuel are explained as well as the different types of biojet fuels.
Additionally, this chapter describes the macro- and micro level of the biojet fuel ecosystem and hereby answers sub questions (1) and (Error! Reference source not found.. At the basis f these analyses lies the conceptual model, which presents factors and actors that might be relevant for the design of a strategy for the commercialisation of biojet fuels (Appendix G). The chapter starts with an introduction to the bio-based economy, the aviation industry and KLM. Next the biojet fuels are explained followed by the macro level analysis and micro level analysis.
5.1 Bio-based economy - the playing field
The bio-based economy is an envisioned future where bio refineries have replaced oil refin-eries, and renewable raw materials have replaced fossil fuels as the primary feedstock for synthetic products. This transition was initiated due to the scarcity of oil and climate change due to increasing GHG emissions.
Figure 5-1: Market size and product value of bio-economy markets (Goldman Sachs, TPG)
5.1.1 The aviation industry
As already mentioned, biojet fuel has only been used in commercial airplanes since the mid 2000’s. Multiple airlines have executed test flights, commercial flights and flight series, re-sulting in a total biojet fuel consumption of around 1000 tons (SkyNRG, 2012). On a yearly basis the total commercial airline industry consumes around 204.6 million tons of fossil jet fuel, showing market uptake of biojet fuel is currently very small (ATAG, 2012).
Airline involvement in the commercialisation is dispersed and strategies are often ambigu-ous. Up to now major airlines like KLM, Lufthansa, British Airways, Virgin and United Airlines and Alaska Airlines have all announced partnerships or projects showing their long-term commitment to biojet fuels, which is often driven by the targets set by the airline industry organisations (Figure 5-2). These targets are however set for GHG emissions only while, for most airlines, the rationale for their commitment towards biofuels is cost reduction and GHG emission reduction.
Figure 5-2: Aviation industry GHG emission reduction targets (EC, FAA, IATA, ICAO, KLM.com)
For investors, midstream and upstream parties the airline industry is a very interesting mar-ket. All airlines rely on large fuel quantities to be readily available at all times. In addition, airlines are willing to sign long term off takes of fuel at the right terms, reducing market risk and ensuring economies of scale. Hereby these supply chains ensure profitability for the producers and return on investment for the financers. Additionally airports have a large cen-tralised fuel demand in terms of fuel, requiring scaled feedstock and biojet fuel production. This is advantageous for midstream and upstream parties. Since only drop in fuels are pro-duced, extensive fuel infrastructure is present (in Western Europe). This makes this part of Europe a large potential market.
5.1.2 KLM
KLM sees biojet fuels as an opportunity to reduce its GHG emissions, diversify its fuels and an opportunity to gain control over its main cost driver. KLM formed a partnership with the WNF declaring it has the intentions to use 1% biojet fuel in 2015. Additionally it has formed other partnerships to stimulate development and deployment of biojet fuels (Table 5-1). One of the landmark actions so far was founding SkyNRG. The company, founded in 2009 as a joint venture together with Spring Associates and the North Sea Group, positions itself as a market maker and aims at creating a sustainable future for the aviation industry by actively developing a biojet fuel supply. The company facilitates feedstock sourcing, sustainability sourcing, biojet fuel production and into plane logistics for any airline wanting to fly on bio-jet fuels. The company hereby has access to the complete biobio-jet fuel market and accumu-lates a lot of knowledge about the industry.
With the founding of SkyNRG KLM has created a more central position for itself by the pos-sibility to use SkyNRG as an intermediary for feedstock sourcing or trading biojet fuels. KLM remains however, a customer of SkyNRG and in increasing its biojet fuel consumption the Dutch airline is investigating its options to move upstream and secure its feedstock and technology for producing biofuel.
Partnership Members Goal
ClimateKic DSM, Imperial college Lon-don, SkyNRG, Schiphol
To develop an alcohol to jet pathway based on lignocellulosic feedstock.
KLM/WNF WNF KLM to have consumed 1% of biojet fuels by 2015
Itaka e.g. NESTE Oil, Airbus, SkyNRG, Embraer
To support the development of aviation biofuels in an economically, socially, and environmentally sustainable manner, improving the readiness of existing technology and infrastructures.
Table 5-1: partnerships formed by KLM
5.2 The biojet fuel opportunity
Figure 5-3: Average yearly oil price and fuel costs as a percentage of airline operating cost (IATA, 2013) Next to reducing emissions, lowering costs and increasing cost stability, biojet fuel also pro-vide new business opportunities. The biojet fuel industry is still very immature, providing opportunities for airlines to take control over one of their highest expenses. These devel-opments can perhaps be converted into a competitive advantage. In short, biojet fuel needs to satisfy the following requirements:
The fuel needs to be a drop-in replacement of fossil jet fuel
The fuel needs to adhere to sustainability standards
The fuel needs to be cost competitive with fossil jet fuelSo far the drop in requirement and the and the sustainability requirement have been satis-fied. So commercialisation is hampered by cost competitiveness with its fossil substitute.
Table 5-2: comparison of properties of alternative fuels with traditional jet fuel (Skynrg, 2012)
Other types of fossil jet fuel substitutes were considered by the industry. However, usage of drop in fuels mitigates the need for large and costly infrastructure changes because the chemical and physical properties are (more or less) the same (Table 5-2).
In general, jet fuels consist of hydrocarbons with eight to sixteen carbon atoms. Availability of feedstocks suitable is for biojet fuel production is ample. There are however different types feedstock. Within the industry often the distinction is made between 1st generation and 2nd generation bio fuels(Table 5-3) (see Appendix D for an extensive description of first- and second generation biojet fuels). First generation biojet fuels are subject to the food ver-sus fuel discussion within society and their impact on GHG emissions is limited. As a result the airlines are solely focusing on the utilization of second generation feedstocks. The
po-0 50 100 150 0% 10% 20% 30% 40% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Average Price per Barrel of Crude (USD) % of Operating Costs
Same engine Same aircraft Energy density Freezing point
Drop in
Ethanol
FAME (diesel)
tential of the first generation feedstocks is constrained because economics are unfavourable and are dependent on the market volatility of food markets.
Table 5-3: Comparison of first and 2nd generation feedstock (Skynrg, 2012)
5.3 The macro environment of the biojet fuel supply chain Decisions of actors in a business ecosystem are influenced by the forces acting at the macro level. A careful analysis of this level is needed to see how it influences the biojet fuel innova-tion ecosystem. This secinnova-tions objective is to answer sub quesinnova-tion (1) by identifying the main forces influencing biojet fuel commercialisation and to qualify their impact.
The results have the analysis are summarized below. The extensive analysis can be found in the Appendix C.
5.3.1 Social/ demographic
Feeding 9 billion people in 2050
In the next forty years the growth of the world population will result in pressures on the earth main resources like land water and energy. This will make sustainability an increas-ingly important issue but can also constrain resource access for biojet fuel actors.
Urban migration and pollution
Because of the population growth, urban migration is expected in the coming decade, re-sulting in the need for polluting reducing fuels and cleaner industries. Biojet fuels can satisfy these needs.
First generation feedstock Second generation feedstock Biomass type Annual crops = food crops. Lignocellulosic materials
Land type Production is limited to arable land and competition with food markets direct
Arable, pasture as well as marginal and degraded lands
Potential Constrained Large
Economics Relatively high feedstock costs, largely determined by food markets
Currently more expensive than 1st gen-eration, but robust outlook for more competitive production costs (>2020)
Sustainability Modest GHG and environmental performance. Food versus fuel con-flict
