Thesis MSc International Business and Management
Adoption of New Business Models:
Development of a measurement tool
University of Groningen
Faculty of Economics and Business Country Studies Master thesis IB&M
First supervisor: dr. B.J.W. Pennink
Co-assessor: dr. Laetitia Em
Author: H.J. Nieuwland
S2729377
H.J.Nieuwland@student.rug.nl
ABSTRACT
This thesis analyses the adoption of New Business Models in multinational corporations. The aim of this research is to develop a tool to measure the extent to which multinational corporations adopt New Business Models. Additionally, the measurement tool can be used to compare the extent to which a multinational corporation adopts New Business Models with other multinational corporations. This research has been conducted by analysing the annual and sustainability reports of ten multinational corporations from different countries in the regions: Western Europe, Asia and Africa. After this, an additional group consisting of five multinational corporations from the same regions were analysed to deepen the insights on the results of the initial analysis. The measurement tool consists of five dimensions of New Business Models. The dimensions are: materiality matrix, multi value creation, stakeholders, performance measures and Sustainable Development Goals (SDGs). Within the dimensions, subcategories are formed and categorised to what extent the subcategories are in accordance with New Business Models. Based on the dimensions and the subcategories, a measurement tool is developed that measures the extent to which the multinational corporation adopts a New Business Model. This research adds to previous research by proposing a global measurement tool that can examine the level of New Business Model adoption in multinational corporations. This research aims to be a starting point towards measurement tools in the New Business Models literature and aims to contribute to the ongoing debate on New Business Models.
KEY WORDS: New Business Models, Sustainability, Multinational corporations, materiality
PREFACE AND ACKNOWLEDGEMENT
Dear reader,
Proudly, I present you my master thesis, which marks the final product of the master International Business and Management. Six years ago, I started my student time as a first year International Business student and by handing in this thesis I say goodbye to the student time after finishing a bachelor International Business, a master International Financial Management and with this thesis also the master International Business and Management.
The subject of this thesis started with a conversation with Bartjan Pennink in which we discussed the phenomena of New Business Models. Starting the thesis, the objective was to examine the extent to which MNCs from different regions adopt New Business Models. When examining the need to make New Business Models more tangible arise, and the lack of tools/frameworks to do this prevailed this. To make the topic more tangible and allow for measurements/comparisons within this topic, I developed a measurement tool to examine the extent to which MNCs adopt New Business Models and allow for comparisons. Therefore, this research serves as a starting point in the measurement literature concerning New Business Models.
I would like to take this opportunity to thank my supervisor, Bartjan Pennink for the excellent guidance during this project. From the starting point of the thesis up to and including my defense he was always willing to help and encouraged me to examine novel ideas and come up with innovative solutions. Additionally, I would like to thank my family and all my friends that have encourage and support me for the whole six years of my student time.
TABLE OF CONTENT
1. INTRODUCTION 5
2. LITERATURE REVIEW 7
2.1. Business Models 7
2.2. A history on value creation 8
2.3. The need for New Business Models 9
2.4. The concept of New Business Models 9
2.5. Differences between New and Traditional Business Models 11
2.6. Materiality Matrix 12
2.7. Multi value creation 14
2.8 Stakeholders 15
2.9. Performance measures 16
2.10 Sustainable Development Goals 17
2.11. Sensitizing concepts 19 2.12. Research question 21 2.13. Conceptual model 22 3. RESEARCH METHODOLOGY 23 3.1. Research setting 23 3.2. Sample 24 3.3. Data collection 26 3.4. Data analysis 27 4. RESULTS 29
4.1. Answer to sub question 1 30
4.2. Answer to sub question 2 33
4.3. Answer to sub question 3 35
4.4. Answer to sub question 4 36
4.5. Answer to sub question 5 37
5. DISCUSSION 40
5.1. Development of the tool to measure the extent of NBMs adoption 40
5.2. Additional group to deepen our insights 41
6. CONCLUSION 46
6.1. Limitations 47
6.2. Recommendations for future research 47
7. REFERENCES 48
8. APPENDIX 51
Appendix A: Detailed overview of operational definitions 51 Appendix B: Detailed overview of MNCs + Deepening group 52
Appendix C: Axial coding base group 54
Appendix D: Selective coding base group 74
Appendix E: Axial coding deepening group 78
Appendix F: Selective coding deepening group 86
1. INTRODUCTION
Over recent years, the concept of business models has gained popularity. Whereas, “Within major magazines and journals, only one article in 1990 used the term business model three times or more; by 2000, well over 500 articles fell into that category.” (Shafer et al (2005)). The concept of business models already gained popularity in the 2000s and can be described as the way in which a company creates value.
Recently, New Business Models (NBM) gained popularity in research (Jonker, 2012). The pressure to perform activities that will foster sustainability are increasing. Moreover, the Sustainable Development Goals of the United Nations are targeted for 2030. Companies should also align their activities to sustainability goals in order to play their part together with the community and governments to reach the SDGs of 2030. New Business Models add to this by incorporating sustainability activities into the core of their operations by changing the Business Model of the company. While sustainability activities are widely adopted in developed countries, the practices are slowly expanded to developing countries (Sharma, 2019). This development calls for a global research on sustainability in MNCs from different regions (Sharma, 2019). “The citizens of developed nations have grown conscious of the fact that corporations have a moral and ethical responsibility towards their customers and the society as a whole.” (Sharma, 2019) The growing influence of the internet and social media has also contributed to this effect (Sharma, 2019).
for exploitation of synergies between different types of innovations, so reducing the potential benefits.” (Bocken et al. 2014). By providing a measurement tool, comparison between MNCs will also be possible. By comparing different MNCs we hope that different MNCs can also learn from each other from the way in which they adopt NBMs.
2. LITERATURE REVIEW 2.1. Business Models
Business models can be defined as the “representation of a firm’s underlying core logic and strategic choices for creating and capturing value within a value network.” (Shafer et al, 2005). A business model is a representation of the reality and shows the way in which businesses create value and capture the returns that come from that value (Shafer et al, 2005). “Business models are concerned with how the firm defines its competitive strategy through the design of the product or service it offers to its market, how it charges for it, what it costs to produce, how it differentiates itself from other firms by the value proposition, and how the firm integrates its own value chain with those of other firms in a value network” (Bocken et al. 2014). Specific definitions on business models differ between researchers, therefore, a summary of definitions on business models in existing literature is shown below.
Article Definition
Linder en Cantrell (2000) The main logic for creating value in a business organisation Shafer et al (2005) “representation of a firm’s underlying core logic and strategic
choices for creating and capturing value within a value network.”
Richardson (2008); Osterwalder and Pigneur (2010); Bocken et al (2014)
Components of business models: (1) Value proposition (2) Value creation and delivery (3) Value capture
Zott and Amit (2010) A business model is activity based on: (1: ‘what’) the selection of activities of the company, (2: ‘how’) the structure of the activity system (3: ‘who’) who is performing the activities. Teece (2010) The business model is described as a way of converting
resources and capabilities by the company into economic value. Jonker (2012) “A business model describes the organisational logic of the
process of value creation and delivery.”
Sinkovics et al (2014) Include the components of Osterwalder and Pigneur (2010) and add change in offering and change in strategy
Table 1: Definition of Business Models in the literature
needed for creating, marketing and delivering that value (Osterwalder, 2010).” (Jonker, 2012). And a Business Model can be described as “a holistic description on ‘how a firm does business” (Bocken et al, 2014). After evaluating previous literature on business models, the following definition from Richardson (2008); Osterwalder and Pigneur (2010); Bocken et al (2014) is selected as the main definition of this paper:
Business Model: “Consist of the Value proposition (products/services, customer segments and relationships), Value Creation and Delivery (Key activities, resources, channels, partners and technologies) and Value capture (Cost structure and Revenue streams)” (Bocken et al (2014)
2.2. A history on value creation
2.3. The need for New Business Models
“The recent global economic and financial crises have raised fundamental questions about the impacts of existing corporate business models on the sustainability of the global economy and society.” (Schaltegger et al., 2016). Moreover, “Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.” (Hedstrom, 2019). These rising concerns have called for possible contributions to sustainable development by companies. Sustainable development has been defined as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs (World Commission on Environmental Development, 1987, p. 41).” (Schaltegger et al., 2016). Dealing with economic, environmental and social issues in a way in which it is integrated in organisations in order to contribute to sustainable development is called sustainability management. New (Sustainable) Business Models (NBMs) are important as NBMs can help to “embed sustainability into business purpose and processes and serve as a key driver of competitive advantage” (Bocken et al, 2014). The NBMs will incorporate activities that create ‘integral value’ into the core business of companies. Visser (2017) describes that the way to tackle global issues is to apply a model of holistic thinking in an attempt to “clearly and to act on the interconnectedness of our economic, technological, human, social and ecological systems.” (Visser, 2017). A way of a holistic approach to innovation is the emergence of New Business Models. That could, “bring us solutions to our biggest social and environmental problems.” (Visser, 2017). Additionally, there is a need for a global view on New Business Models as the level of economic development, culture (Welford, 2005) and quality of institutions (Sinkovics et al., 2014) is connected to the degree in which MNCs are involved with CSR activities. CSR activities are connected to the triple bottom line profitability of people, planet, profit (Elkington, 1994) and is therefore also connected to NBMs.
2.4. The concept of New Business Models (NBMs)
Formerly the improvement of quality and efficiency has led to profits, but it is much less clear how creating social and environmental value can translate in profits and/or a competitive advantage for the firm (Bocken et al. 2014). NBMs “can help maintain, or even increase, economic prosperity, by either radically reducing negative or creating positive external effects for the natural environment and society (Schaltegger et al., 2016). “The literature generally frames business model innovation in the context of changing the value proposition for the customer. However, it is more than just changing the product and service offerings for the customer” (Bocken et al. 2014). Hence, the emphasis of NBMs is on changing the ‘way’ that a company does business compared to Traditional Business Models that are more concerned with ‘what’ the business does (Bocken et al. 2014). This type of business model should create a competitive advantage by offering a superior value to customers while also contributing to the sustainable development of the society and the company itself (Lüdeke-Freund, 2010). New Business Models “create so-called ‘multiple value(s)’, which refers to organising in and between organisations that generates social and ecological value, apart from economic value.” (Jonker, 2012). Thus, New Business Models (NBMs) incorporate three pillars of sustainability: the triple bottom line (Elkington, 1994) of economic, social and environmental performance. Implementing the triple bottom line can help to embed “sustainability into business purpose and processes and serve as a key driver of competitive advantage.” (Bocken et al. 2014). Thus, NBMs are focused on creating social and environmental value next to economic value. However, social and environmental value creation is still difficult to measure. New ways of performance measures should be developed which should lead to a multi-capital perspective of measuring value (Visser, 2017). Additionally, as firms are moving towards a business model in which the capture of social and environmental value are more considered. Firms are searching for a way to make this environmental and social value more tangible as it is often harder to measure as economic value. Moreover, business models that are to a higher degree ‘new’ or ‘sustainable’ should consider a wide range of stakeholders that goes beyond only considering customers and shareholders (Bocken et al., 2014; Schaltegger et al.,2016). And therefore, it is necessary to include the environment and society as stakeholders. Sustainable
Development Goals could help make this value creation more tangible by proposing clear targets
New Business Model (NBM): “A business model for sustainability helps describing, analyzing, managing, and communicating (i) a company’s sustainable value proposition to its customers, and all other stakeholders, (ii) how it creates and delivers its value, (iii) and how it captures economic value while maintaining or regenerating natural, social, and economic capital beyond its organizational boundaries” (Schaltegger et al., 2016: 6).
2.5. Differences between New Business Models and Traditional Business Models
Requirement Explanation
1 Financial stability Returns should outweigh the costs (in the long run).
2 Collaborations Make partnerships in order to make connections
3 Embeddedness The NBM should be embedded in the society
4 Multiple value
creation
Create value for all those involved
5 Sustainable earnings The model of earnings should be aligned with the sustainability purposes of the company
Table 2: Requirements for NBMs
While there are different ways in which companies can adopt NBMs, there exists no general tool to measure the extent to which the company is adopting a NBM. By developing a measurement tool, there could exist a general understanding of what dimensions add to a NBM. Additionally, the way in which NBMs are adopted in MNCs can be conceptualised by developing this tool. Additionally, as companies can be compared to each other based on their involvement of NBMs, MNCs could also learn from other MNCs in the way that they adopt NBMs. Furthermore, all companies add sustainability chapters to their reports, but we should develop a way to objectively look at annual reports of companies and assess the extent to which they adopt a NBM. Moreover, as there are different parts of the business model on which a company could adopt a NBM or a TBM we expect that a company can adopt dimensions of NBMs while also adopt dimensions of TBMs. Therefore, it should be possible to not just state when a company is adopting a NBM or a TBM but create a tool in which the extent to which a firm is adopting a NBM can be measured.
2.6. Materiality Matrix
influence the way that companies create value in both the long and short term (Jones et al. 2016). Additionally, this influences the companies’ strategy and evidently its business model. The company can show which issues are material to the company in communicating their materiality matrix in their annual or sustainability report. The materiality matrix identifies the activities that are of most importance to the company itself and its society (Eccles et al. 20112), (external) stakeholders and the way in which the company creates economic, social and environmental value (Jones et al. 2016). A materiality matrix can be important to help companies on six issues, namely: issues that can create long term value for the company, identify opportunities for the company, ‘align sustainability and business strategies’, gain competitive advantage by having a strong brand and reputation, focus on change and better annual reports that are more focused and shorter (Jones et al. 2016). Additionally, KPMG (2014) states that a materiality matrix can be used as a strategic business tool, as the implications of the materiality matrix should go far beyond sustainability reporting. Moreover, the matrix can be used to create a situation in which sustainability is embedded in the key processes of the company instead of just an isolated and separate process (KPMG, 2014). Although specific definitions on the materiality matrix may differ per company, the table below shows the most common elements of a materiality mix that can be identified (Jones et al. 2016).
Element Explanation
1 Identify relevant issues Should identify which issues are relevant on environmental,
social and economic issues.
2 Rank by stakeholders The stakeholders should rank which issues raises the most concerns
3 Impact to the company Rank the impact of the issues to the company 4 Present the most
important issues
A matrix format is usually used to present which issues are the most important to the company and its stakeholders
5 Include feedback Take into consideration the feedback of several stakeholders on the matters in the materiality matrix
Table 3: The common elements concerning the materiality matrix following (Jones et al. 2016)
Image 1: The materiality matrix of Miele from the sustainability report 2019.
As can be seen from the example in image 1, the materiality matrix includes two axes on which the multiple issues/topics for the company are plotted. The issue that has been identified as the most ‘material’ issue is shown in the top right corner of the matrix. In this example, resource-efficient products and consumption-optimised products are ranked as the most ‘material’ topics of this company. The parties that have been consulted to create this materiality matrix, are as can be seen from the materiality matrix: Miele’s impact on the issues and external expectations on the issues. The parties that are consulted to conduct the materiality matrix are interesting to examine as these show which parties the company consults when defining important decisions for the company. Thus, involving more external parties would score the highest on the NBM matrix. Additionally, the issue that is identified as most ‘material’ to the company says something about the company as we already stated that a NBM considers environmental and social value creation next to economic value creation. So, when the activity considers both social and environmental value creation this would show the ‘highest score’ on NBM. Additionally, in this materiality matrix the extent to which the issues contribute to the SDGs are also mentioned in the materiality matrix.
in combination with aims such as taking care of one another, creating safety, protecting the environment or social capital.” (Jonker, 2012). However, MNCs seem to be trapped in an approach in which they see value creation solely as obtaining short term financial performance instead of a determinant for long term performance (Porter and Kramer, 2011). Moreover, most companies keep seeing ‘social responsibility’ as being on the surface of the company but not at the core of the business operations (Porter and Kramer, 2011). Therefore, creating multi/shared value should be seen as an economic success and not social responsibility or even sustainability (Porter and Kramer, 2011). New Business Models refer to generating “social and ecological value apart from economic value (Jonker, 2012). An important component of NBMs is multi value creation based on the triple bottom line performance of creating social, economic and environmental performance (Elkington, 1994). MNCs who create multiple values are not only concerned with the financial value creation, but main parts of their business model are also focused on obtaining social and environmental value. A MNC creates multiple values when the MNC creates value for itself while also creating value for the stakeholders involved with the company. Porter and Kramer (2011) describe in the Harvard Business Review three ways in which companies can create shared/multiple value opportunities: “(1) By reconceiving products and markets (2) By redefining productivity in the value chain (3) By enabling local cluster development” (Porter and Kramer, 2011).Therefore, multiple value creation is also connected to using several stakeholders. Because creating value for multiple stakeholders instead of only for the shareholders is in definition multiple value creation and is therefore also connected to the adoption of NBMs in MNCs. Multiple value creation can lead to a higher extent of implementing the NBM compared to a TBM in the Business Models of MNCs. Thus, when there is more value creation than just economic value, the MNC adopts a NBM in a certain extent. Next to the theory Porter and Kramer (2011), Visser (2017) developed the theory of integrated value. Visser (2017) sees integrated value as “a pillar of sustainable transformation, which goes beyond previous conceptions of value creation” (Visser 2017). Therefore, business models will adopt NBMs to a higher extent when they incorporate social and environmental value creation next to economic value creation.
2.8. Stakeholders
The stakeholder dimension of New Business Models will examine the stakeholder groups that are identified in the report by the company. Mostly, stakeholder groups are divided between internal stakeholders (“the organization’s governing body, management, employees and shareholders” (Hedstorm, 2018)) and external stakeholders (Typically include communities, government, environmental groups, as well as suppliers, customers and consumers. (Hedstorm, 2018)). Business models that are to a higher degree ‘sustainable’ or ‘new’ would align the “interests of all stakeholder groups, and explicitly considers the environment and society as key stakeholders.” (Bocken et al 2014). The New Business Model should not only focus on the company but should also have attention for more stakeholders and a wider value network (Bocken et al. 2014). Next to the firm, its shareholders and its customers the company should also consider the value that is captured for other key stakeholders such as suppliers (Bocken et al. 2014). Thereby, sustainable business models capture economic, social and environmental value for a wide range of stakeholders” (Bocken et al. 2014). Therefore, it can be noted that a MNC adopts the NBM to a higher extent when the MNC includes more than just traditional stakeholders (customers and shareholders) in their materiality matrix. Traditionally, shareholders are seen as the most important part of stakeholders. Accordingly, top managers can prioritise the value maximization for shareholders above other stakeholders in their decision-making process (Tantalo and Priem, 2016). Stakeholder theory is countering this proposition and aims to include stakeholder groups that are essential to the firm’s survival (Tantalo and Priem, 2016). These stakeholders can be internal or external to the MNC. Examples of stakeholder groups that are vital to the firm’s survival are: “customers, financiers (including shareholders), suppliers, employees, and communities” (Tantalo and Priem, 2016). Often, stakeholders have competing goals and the top managers should balance these (Tantalo and Priem, 2016), and decide which stakeholders to prioritise. The choice of which stakeholders the MNC is prioritising in the report can explain something about the business model of the MNC. For example, more emphasis on (external) stakeholders that go further than just the shareholders of the company can mean that the company is adopting the NBM to a higher extent compared to the TBM. Moreover, managing stakeholders with great attention can lead to a sustainable competitive advantage and lead to better financial firm performance (Tantalo and Priem, 2016).
2.9. Performance measures
of a company. The theory of Blended value (Emerson, 2000) consists of maximizing social returns while also maximizing financial returns. This is an important part of New Business Models as it is important for a company that it is financially stable next to considering other non-financial measures. Connecting to previous chapters about multi-value creation, stakeholders and the next chapter of sustainable development goals. New Business Models are characterized by the fact that they create multiple values (Jonker, 2012). Contrary, “Traditional business models often do not manage to create multiple value(s). This is mainly due to the value of sustainability, which is not only expressed in terms of money” (Jonker, 2012). Therefore, this chapter focuses on other ways of measuring performance in New Business Models as measuring social and environmental value creation might be more difficult as they are not only viewed in financial measurement terms. “Many financial and legal systems do not work in favour of NBMs, primarily because these systems do not recognise value other than economic profits” (Jonker, 2012). Therefore, a multi-capital perspective of measuring value should be adopted (Visser, 2017). “This includes exciting new methodologies that are emerging, from KPMG’s True Value and PwC’s Total Impact Measurement & Management to B-Lab’s B Impact Assessment and Puma’s Environmental Profit & Loss” (KPMG, 2014).” (Visser, 2017).
2.10. Sustainable Development Goals
1. No poverty 10. Reduced inequalities
2. Zero hunger 11. Sustainable cities and communities
3. Good health and wellbeing 12. Responsibility consumption and production 4. Quality education 13. Climate action
5. Gender equality 14. Life below water 6. Clean water and sanitation 15. Life on land
7. Affordable and clean energy 16. Peace, justice and strong institutions 8. Decent work and economic growth 17. Partnerships and goals
9. Industry, innovation and infrastructure
Table 4: The 17 Sustainable Development Goals from the United Nations (Source: www.sdgnederland.nl)
2.11. Sensitizing concepts
The goal of this study is to develop a measurement tool to examine the extent to which MNCs adopt NBMs. To make the study structured, five dimensions will be used that differ greatly in NBMs compared to TBMs. These five dimensions were formed following the literature review that has been described in the previous chapters and are developed from the sensitizing concepts of this study. Subcategories for these dimensions will be created during the analysis of the reports of the multinational corporations. The previous chapters already discussed some differences between TBMs and NBMs, the different dimensions that will be used in this study are: (1) materiality matrix (2) multi value creation (3) stakeholders (4) performance measures (5) Sustainable development goals. We take the general five dimensions from existing literature to serve as a starting point for creating this measurement tool. Graph 1 shows the relation between business models and shows the sensitizing concepts that will be used as a starting point in this research. The sensitizing concepts show the five dimensions and are created based on the extensive literature review.
As the aim of this research is to describe to what extent MNCs adopt NBMs compared to TBMs, it is important to clearly conceptualise to what extent a dimension can be seen as a NBM or a TBM. Therefore, we should have a clear understanding of the dimensions and when they can be ascribed to a TBM or a NBM within the MNC. Table 5 summarises the main differences between Traditional and New Business Models on these dimensions: materiality matrix, multi value creation, performance measures, stakeholders and SDGs. These operational definitions are based on the literature review and the sensitizing concepts that are shown in graph 1.
Traditional Business Models
(TBM)
New Business Models (NBM) Materiality Matrix A materiality matrix is not seen
as important in a TBM compared to a NBM.
A materiality matrix is used to select together with stakeholders the most ‘material issue’ to the company
Multi value creation Value is created in the form of
financial value for shareholders. Additionally, sustainable
activities can be performed to reach higher financial value for shareholders.
Multiple values are created. Next to financial value the focus is also on the creation of social and environmental value for all stakeholders.
Performance measures
Measures to examine performance are focused on financial performance.
Next to financial/economic performance, the performance of the MNC is measured with social and environmental performance measures.
Stakeholders Traditional stakeholders such as customers and shareholders are considered.
A wide range of stakeholders are considered including the
environment and the society
SDGs The company might mention the
SDGs when they are aligned with the core operations of the company.
The targets of the SDGs are included in the core operations of the company. Additionally, the impact of the company on these SDGs is measured.
2.12. Research Question
From the previous sections it can be concluded that for a more sustainable way of doing business, new business models are needed. Several researchers addressed different ways of incorporating sustainable issues in the business model of companies. Although some researchers such as Bocken et al. (2014) developed frameworks in which new business models could be categorised. A measurement tool to measure the degree to which companies adopt NBM is missing. This measurement tool is of vital importance for the adoption of NBM as it can show that next to activities that can be described as traditional, the MNC could also adopt NBMs on other parts of the business. Additionally, the tool allows for comparison between the extent to which different MNCs adopt NBMs. The tool could also be used as a guide of how MNC can adopt New Business Models. From this, we arrive at the following research question:
“How does a measurement tool to address New Business Models look like?”
The sub questions are based on our sensitizing concepts and will be worked out in order to find how MNCs can be positioned on the axe from Traditional Business Models to New Business Models in our measurement tool. And by this, also answering our research question. The research question is answered by addressing the following sub questions:
1. How do firms address materiality concerning New Business Models? 2. How do firms address stakeholders concerning New Business Models?
3. How do firms address Multiple Value Creation concerning New Business Models? 4. How do firms address performance measures concerning New Business Models?
5. How do firms address Sustainable Development Goals (SDGs) concerning New Business Models?
2.13. Conceptual Model
Graph 2 shows the conceptual model of this study. The sections in the conceptual model explain the steps in this research. The conceptual model is following Bocken et al. (2014). The model shows in a structured way the three phases of this research, and in this way forms the basis of this research. Additionally, it is highlighted that in this research coding until saturation and an iterative process of analysis was used. The chapters of the thesis are connected to all parts of the conceptual model and are also shown in the model to serve as a guide throughout this thesis.
3. RESEARCH METHODOLOGY 3.1. Research setting
The objective of this study is to develop a measurement tool that can be used to assess the extent to which multinational corporations from different countries adopt new business models. This will be done by analysing the annual and sustainability reports of multinational corporations on five different dimensions. In order to do so, the research will include three different phases.
The first phase includes the operationalisation of the New Business Model definition and the creation and explanation of the five dimensions that explain the extent to which a business model is ‘new’ compared to more ‘traditional’. This was done in chapter 2, with the extensive literature review, the first phase concluded with the development of the sensitizing concepts of this study. Identifying dimensions within the NBM is needed to make the concept of NBM measurable. Making NBMs measurable is important as the concept of a NBM is not clearly defined, MNCs often have a lot of statements regarding implementing sustainable activities in their business models. However, there exists no clear measurement tool for this. The sensitizing concepts that result in five dimensions are used to analyse the adoption of NBMs in a structured and concrete way.
In the second phase, the five dimensions will be analysed in the annual and sustainability reports of multinational corporations from different countries. By analysing these five dimensions and how they are being described in the reports of the MNCs, we make the dimensions measurable by creating subcategories that include different levels of adoption of NBMs. The dimensions that are expected to show the level of adoption of NBMs are: the materiality matrix, stakeholders, multi value creation, the way in which performance is described and the implementation of the SDGs in the performance and multi value creation of the company. The sensitizing concepts form the basis of this analysis and is shown in the literature review and graph 1. The annual and sustainability reports of 10 different MNCs from three different regions and within these regions from different countries are used in the analysis. The goal is to develop a measurement tool in which we have a TBM axis and a NBM axis. The measurement tool will place allow to visualize the extent to which the MNC adopts a NBM compared to a TBM, based on the five dimensions.
Graph 3: Summary of the three phases of this research
3.2. Sample
Regions GDP per capita* in 2018 Western Europe (NL/ CH/ GE/ FR) 56,233.5 (53,022.2 / 82,828.8/ 47,615.7/ 41,469.9) Asia (JP/ SK/ IN/ HK/ MY) 26,545.6 (39,290.0/ 31,380.1/ 2,010.0/ 48,675.6/11,373.2) Africa (SA) 6,374.0 (6,374.0)
Table 6: Overview of differences from different regions (*GDP per capita 2018 in US dollars, source: data.worldbank.org
cause the researcher to pick companies that have more sustainable activities and thus is biased. However, as this study will not test whether the companies use a NBM or not but focus on the ways in which it can be adopted as a roadmap this will not cause the results of this study to be biased. ORBIS will be used to select companies that comply with our sample criteria. We should stress that this does not entail that it is a random sample of companies, but an attempt to investigate how the leading companies in each region act in order to ‘paint a picture of best practice’ (Welford, 2005).
3.3. Data collection
Label Company
Name Industry Region Country Report
EU1 FrieslandCam pina
Diary products Western Europe
NL Annual Report 2019 EU2 Nestle S.A. Food processing Western
Europe
CH Annual Review 2019 EU3 Miele Consumer goods,
durable household products Western Europe GE Sustainability report 2019
EU4 Vodafone Telecommunication Western
Europe FR Sustainable business report 2019 A1 Mitsubishi Conglomerate Asia JP Annual Report 2019 A2 Samsung Conglomerate Asia KR Sustainability report
2019
A3 Tata Steel Steel and Iron Asia IN Integrated report & annual accounts (2018-19)
A4 Lenovo Computer hardware electronics
Asia HK Sustainability report 2018-19
AF1 Mondi Group Packaging and Paper
Africa SA Sustainability report 2019
AF2 Shoprite holdings
Retail Africa SA Integrated Annual Report 2019
Table 7: Overview of the companies and reports used included in the sample of this research 3.4. Data analysis
research are the starting points of how a Business Model can be described and how the extent to which a MNC adopts a NBM can be measured.
The sensitizing concepts of this study are formed by the extensive literature review of this study, embedded in the sub questions of this research and visualizsd in graph 1. After the starting point of this research is set, the reports of the MNCs will be analysed using coding. The practice of coding (Strauss & Corbinn, 1990) is used to extract information from the qualitative data stated in the different annual and sustainability reports. To keep the qualitative analysis systematic, we will use the following three coding processes: open coding, axial coding and selective coding. The researcher looks for parts in the report that are about the concepts concerning the concepts of NBMs described in our sensitizing concept. Additionally, the researcher looks if there is any additional information that can add to the understanding of New Business Models and how the MNCs adopt this. This is in line with the inductive theory building approach (Eisenhardt 1989, and Yin, 2003). The next step in coding is axial coding. With axial coding we will order the quotes into the components and descriptions of chapter 3. Additionally, the codes will be related to each other. The last step of the analysis is selective coding in this part, we find core concepts that have emerged from the coded qualitative data. This will conclude in a summary that shows the findings as an overview per category. After the selective coding, we will discuss the results of the data analysis in the results chapter of this research. In the results chapter the findings will be discussed in order of the different sub questions. This chapter will serve as a starting point for the development of the measurement tool that will be shown in the discussion chapter.
4. RESULTS
Graph 4: Relation between sensitizing concepts and dimensions of New Business Models 4.1. Sub question 1: How do firms address materiality concerning New Business Models?
companies with a materiality matrix in their report will have minimal influence on the findings. Although all companies included some materiality analysis in their reports, it could be observed that the way in which the materiality matrix was adopted in the reports differs greatly between the different MNCs. Concerning the materiality matrix, we looked at two important factors that are included in every materiality analysis. We collected the most important issue(s) examined by the materiality analysis. Additionally, we looked at the criteria that were used to find these issues. For these two subjects within the dimension of materiality matrix, two tables (table 11: materiality matrix criteria and table 12 : most ‘material’ topic to the company) are created. During the open coding process, information on the materiality matrix was analysed, from this we found that every company says something about the criteria of the materiality matrix and the most ‘material’ topic(s) concluded from the materiality matrix. With the axial coding process, the codes from the open coding were structured so it could be analysed systematically. From the axial coding process the subcategories could be structured. After the axial coding process, an extensive summary of all dimensions could be structured in the selective coding section. From the selective coding, and comparison between the codes of different companies, examples of subcategories could be identified. The axial and selective coding schemes can be found in the appendix C and D. As the open coding was done by highlighting and code parts in the annual reports, this could be received by requesting the annual reports by the researcher. However, the axial coding schemes give a structured overview of the codes that have been found in the open coding section and should therefore provide substantial data on all sub questions. Table 8 shows the summary of the answers to this sub question. When quantifying the info mentioned in the table below, the subcategories are divided into stages. The first stage scored the lowest on the adoption of NBMs in the MNC. Subsequently, the fourth stage is serving as a best practice in which the adoption of NBMs in the MNC is the highest.
Materiality Matrix (Criteria) Dimension Stage Subcategories Examples
1 Company focus Impact on the company, impact on the success of the company, companies’ impact on the issues, relevance to the business, significance to the environment of the company, influence on revenue and profitability, impact to relationships of the company. 2 General focus External expectations, Relevance to society as a whole
3 Stakeholder focus
Influence on decisions of stakeholders, Importance to stakeholders, Impact to stakeholders, expectations of stakeholders
4 Social focus Social impact, impact on (local) communities
From table 8 we can see that four different stages with connected subcategories were developed based on the axial coding of the reports of ten MNCs. It is important to notice that all companies had some kind of company focus as one of the criteria for the materiality matrix. On the other axis, there was usually a stakeholder criterion or one of the general or social focusses. As this axis is the one with the variation, the axis next to the company focus will be considered for measurement purposes. This means that when Stage 1 is picked, only the company focus is considered in the materiality matrix. When the MNC selcts another focus next to the company focus, the MNC is considered to adopt a NBM to a higher level. Because by doing this the company acknowledges that next to impact on their own business the company does also have an impact on external stakeholders such as the environment. More about this can be found in the sub question which is about stakeholders that will be discussed later in section 4.2. Below, an example is given regarding the information that is used for the data analysis of this sub question. This is done in order to be transparent about the way in which data was analysed based on codes from the reports. The quote below shows a statement from an annual report made about the criteria that were used to analyse the materiality matrix. From the quote we can see that Miele looks at external factors and Miele’s impact on the material issues. From the quote we can conclude that the company reaches Stage 2 because next to the company focus, they consider a general focus when assessing the most material issue/topic.
“The horizontal axis shows the influence of external factors on the respective topic for Miele (outside-in), while the vertical axis shows Miele’s impact on the respective topic (inside-out).” (Miele, Sustainability Report 2019)
Materiality Matrix (‘most material’) Dimension
Stage Subcategory Examples
1 Economic focus Economic: Resource-efficient products,
Consumption-optimised products, product quality, technology and innovation.
2 Governance focus Governance: business culture and leadership, security,
stakeholder engagement, Supply chain stewardship, 3 Combination of Economic
and Environmental focus
Combination economic and environmental:
Resource-efficient products, reduce waste 4 Environmental or Social
focus
Social: Undernutrition, Human rights, Labor practices,
Occupational health and safety. Environmental: CO2- footprint
Table 9: summary of the most ‘material issues’ to companies
The quote below shows the most material issue that was selected in the materiality matrix of Miele. In this case, ‘resource-efficient product’ was selected as the most material issue for the company and this quote has been selected to explain the analysis of this dimension. Considering the fact that resource-efficient products might both be ascribed to economic and environmental focus, stage 3 was selected for this quote. Using resource-efficient products probably decreases costs while also doing less harm to the environment as fewer resources are used. Therefore, the combination is key in this statement.
“Resource-efficient product” (Miele, Sustainability Report 2019)
4.2. Sub question 2: How do firms address stakeholders concerning New Business Models?
can indirectly have a big impact or be largely impacted by the company. Examples of indirect internal stakeholders are customers, suppliers, governments, regulators. The fourth stage of the stakeholders group consists of external stakeholders. The external stakeholders are the groups that do not directly influence the performance of the company. This group consists of stakeholders that are the least usual considered in the MNC. But the company can have an impact on these groups, however less than the indirect internal group. Examples of external stakeholders are NGOs, local communities and the environment. MNCs that consider more external stakeholders (the fourth stage of the model) as vital to the company are suggested to adopt more new/sustainable business models as they look further than only what is the financial key to the company. The table below shows a summary of the findings concerning the implementation of stakeholder groups in reports of MNCs. What is interesting to note regarding the implementation of external stakeholders, is that while many MNCs considered the environment in their NBM statement or materiality matrix, only one company in the analysis mentioned the earth as a key stakeholder to the company. While MNCs mentioned NGOs and activists in their reports, which could mean that these groups work on behalf of the environment. The environment itself is nearly ever considered as a key stakeholder to the MNC. The findings are connected to the sensitizing concepts concerning stakeholders as the sensitizing concepts stated, “are society and environment included next to traditional stakeholders such as customers and shareholders.” This was extended based on the coding schemes to shareholders, internal, indirectly internal and external stakeholders. Connecting to sensitizing concepts we can see that internal stakeholders are the most ‘traditional’ and external stakeholders are the most connected to New Business Models.
Stakeholder Dimension Stage Sub categories Examples
1 Shareholders Shareholders
2 Internal Investors, Employees, shipping and logistics partners, Business partners
3 Indirectly internal Customers, Consumers, Suppliers, Government, Companies, Industry Associations, Regulators, Trade Unions, policy makers and legislators, Host governments, Debt funders
The quote below shows a random example to show in a transparent way how quotes from reports have led to the stages, subcategories and examples in the table above. The quote shows which stakeholders are categorised by the company includes internal stakeholders: customers, employees, suppliers, investors. And indirectly internal stakeholders: regulators. Moreover, external stakeholders (members of the communities in which it operates) are also considered. Based on this quote, the fourth stage concerning stakeholders should be selected for this MNC.
“Lenovo actively manages its relationships with customers, employees, suppliers, investors,
regulators, members of the communities in which it operates, and other stakeholders whose actions can affect the Company’s performance and value.” (Lenovo, Sustainability Report 2018-19)
4.3. Sub question 3: How do firms address Multiple Value Creation concerning New Business Models?
Multi value creation can be explained as the value that a MNC creates. To describe to what extent a MNC adopts a NBM it is important to examine whether the company is involved in creating value for the community, society and the environment (people and planet) next to creating value for its shareholders and customers (profit). Therefore, people, planet, profit can be seen as a paradox between creating value for internal stakeholders (such as customers and shareholders) versus creating value for external stakeholders (such as the community and the environment). The literature review in connection with the open coding technique uncovered the examples of value creation that are included in table 10. When the data was systematically summarised in the axial and selective coding scheme, the subcategories of multi value creation were found, these were also supported by the literature review on the dimension of multi value creation. Table 11 shows the stages, subcategories and examples on the multi value creation dimension.
Multi Value Creation Dimension
Stage Subcategories Examples
1 Only Economic (Financial, Manufacturing, intellectual.)
Economic examples: Reduce waste.
2 Only Social (Human, social,
relationship) or Environment (Natural)
Social examples: Job creation, Skills and career
development, Local sourcing and Social upliftment.
3 Economic and Environmental/Social Environmental examples: Reduce waste,
Generating sustainable energy. 4 Economic, Social and Environmental
Additionally, many MNCs mention that they find it important to create value for all stakeholders. Therefore, the stakeholder chapter can be connected to this chapter as it is about which stakeholders are included and seen as key to the company and its performance. This dimension is connected to the sensitizing concepts as the subcategories are connected to the sensitizing concepts which state: that it is about whether the company creates value for environment and society next to value for shareholders and customers, and is in the way that is also shown in the sensitizing concepts connected to the stakeholders dimension. The quote below shows the vision of Nestle on their multi value creation approach. This quote was randomly picked and used to illustrate the transparency of data analysis in this research. It can be seen that the company next to creating value for shareholders also is focused on creating positive social and environmental impact. And therefore, we can see that the company considers economic, social and environmental value. And thus, should be assigned to Stage 4 concerning multi value creation in the adaptation of New Business Models in MNCs.
“Our Creating Shared Value approach helps to prioritize those areas that maximize value creation for shareholders and cultivate positive societal and environmental impacts.” (Nestle S.A. Annual Review 2019)
4.4. Sub question 4: How do firms address performance measures concerning New Business Models?
Performance Measures Dimension
Stage Subcategories Examples
1 Financial measures ROI
2 Compares own performance with international goals
EU climate protection targets
3 Targets to achieve international goals Own targets to attain sustainable activities and achieve international goals such as the Paris Agreement
4 Own performance measures KPIs, KPMG ‘true value’, Tackling climate change, shaping a waste free future,
promoting gender balance, target of 30% women employees
Table 12: Summary of performance measures that have been seen in the reports of MNCs.
The quote below is randomly picked to illustrate how conclusions on dimensions were made from data from reports. This attributes to showing transparency in this research. This quote shows the way in which Samsung measures performance. From the quote below we see that Samsung adopts the ‘True Value’ methodology that next to economic performance quantifies the performance on social and environmental activities, which shows that the company measures next to economic also social and environmental performance.
“Since 2016, in order to improve data reliability, we have measured the outcome of our social and environmental value creation activities using KPMG’s “True Value” methodology, which provides a proven approach in the quantification of social and environmental indicators.” (Samsung, Sustainability Report 2019)
4.5. Sub question 5: How do firms address Sustainable Development Goals (SDGs) concerning New Business Models?
which goals are contributed to by MNCs. As from open coding it could be concluded that almost all companies mention the SDGs and make a visible contribution to them. From the axial coding we distinguish between finding goals that are aligned with the operation of the company and going out of your way to contribute to these SDGs. These different findings are included in the table as examples. We believe that when companies make an effort to actively undertake activities that are aligned with the SDGs, the MNCs adopt a higher level of NBM. When quantifying the info mentioned in the table 13, we see that the degree to which a NBM is adopted within the business is the lowest in Stage 1 and the highest in Stage 4 when the company shows high commitment to SDGs. Therefore, Stage 4 serves as a showcase for ‘best practice’ concerning SDGs in the extent of adoption of NBMs in MNCs. These categories are defined following the selective coding schemes that show a structured summary of the findings on Sustainable Development Goals (SDGs).
Sustainable Development Goals (SDGs) Dimension Stage Subcategories Examples
1 No commitment No mention SDGs
2 Little commitment Mention the activities that are similar to SDGs 3 Medium commitment Stimulate activities to target SDGs
4 High commitment Actively shape operation to be aligned with SDGs
Table 13: Summary of sub question 6
5. DISCUSSION
5.1 Development of a tool to measure the extent of NBMs in MNCs
This chapter shows the development of a measurement tool for NBMs. Therefore, this chapter will present the ‘end product’ of this thesis. The adoption of NBMs by companies is made measurable by connecting stages to the subcategories of all dimensions. The dimensions of New Business Models were based on the literature review which led to the sensitizing concepts. From the sensitizing concepts, the dimensions mentioned in annual and sustainability reports in MNCs were analysed using coding techniques. By doing so, subcategories were created with examples that can help the researcher with selecting the right stage for MNCs on specific dimensions. Based on the literature review, the highest stage is connected to the subcategory regarding the highest adoption of NBM for that dimension. Often a business model is viewed as either ‘new’ or ‘traditional’. However, this measurement tool is moving towards a model that shows that business models can have dimensions from both ‘traditional’ and ‘new’ business models. The tool shows that the MNC might adopt a NBM to a high level in one of the dimensions, whereas adopting NBM to a lower level on other dimensions of the NBM. The lowest stage is connected to the Traditional Business Model while higher stages on subcategories represent a higher adoption of that dimension of a New Business Model compared to adopting a Traditional Business Model.
Graph 5: Tool to visualize the scores of the different dimensions on the adaptation of NBMs in MNCs
5.2. Additional group to deepen the insights
the deepening group no new information on the extent of adoption of NBMs is collected. Thirdly, the deepening group will be used to perform the measurement tool to show the results on the development of this tool. And to plot the results of the measurement in the visual graph. The deepening group is representative compared to the ‘base’ group and includes two companies from Western Europe, two companies from Asia and one company from Africa. The open, axial and selective coding of this deepening group was done before the creation of the measurement tool from chapter 5.1. In this way, the researcher cannot let the developed measurement tool cloud the judgement of the deepening group. The coding of the deepening group was done in the same way as the coding of the first ten companies. It includes a way of open coding in which a first open look is done towards the information provided in the reports. From open coding, as it is the most elaborative mostly the examples of the subcategories are found. When the information is more systematically analysed and grouped during the axial and selective coding process, the subcategories and groupings respectively are found. The axial and selective coding schemes can be found in appendix E and F. The table below shows the details of the companies that are included in the deepening group.
Label Company Name Industry Region Country Report
CEU1 Airbus SE Aircraft Industry Western
Europe NL Annual Report 2019 CEU2 Danone S.A. Food processing Western
Europe
FR Annual Report 2018 & Materiality Matrix
CA1 Petronas Oil and Gas Asia MY Annual Report 2018
CA2 LG Group Conglomerate Asia SK Sustainability report 2018-2019
CAF1 Woolworths limited holdings
Retail goods and services
Africa SA Integrated Annual Report 2019
Table 14: Overview of companies included in the deepening group
Dimension CEU1 CA1 CAF1
Materiality Matrix Criteria 3 3 3
Materiality Matrix Focus 4 2 1
Stakeholders 4 4 4
Multi Value Creation 4 4 1
Performance measures 3 4 3
Sustainable Development Goals (SDGs) 3 2 2
Table 15: Overview of the scores from the MNCs from the deepening group of the different dimensions of NBMs
5.3. Comparison Corporate Sustainability Scorecard Hedstorm (2018)
6. CONCLUSION
6.1. Limitations
Although this research was conducted with great care, this research suffered from some limitations. Most limitations are connected to the time constraints of the researcher as this research was conducted as a master thesis. Therefore, the research would have obtained a higher level of generalisability when the sample of the research would have been increased. Although this was not possible due to time constraints, we believe that a level of saturation was reached as there was no significant change in the measurement tool after analysing the deepening group of the sample. Additionally, to find diversity in companies we researched companies from different industries and countries but when adding more companies to the sample the diversity in the sample could have also been increased. Another limitation of this research is that the reports of the companies were coded by one researcher, whereas multiple researchers conducting the coding could have led to more objectivity of the information. Although the New Business Model measurement tool is developed with great care and created in order to be easily adaptable, the use of the measurement tool will still be subjective to some point to the judgement of the researcher. Therefore, someone using the measurement tool should always describe which information is analysed to use the measurement tool. As the topic is contemporary with not an extensive set of previous research (Bocken et al, 2014; Porter and Kramer, 2011). This research should not be seen as an attempt to capture every part of the full reports of companies, but only the ‘most important’ parts of the reports are attempted to be captured based on the sensitizing concept of New Business Models. Moreover, this research does not pretend to be complete, we acknowledge that based on this research there can be more follow-up questions. However, this research has aimed to add to the New Business Model research by providing a measurement tool that can be used as a starting point for measuring the extent to which MNCs adopt New Business Models. Therefore, we also acknowledge and stimulate that based on this research more dimensions and subcategories can emerge from future research.
6.2. Recommendations for future research
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