Rationalizing the importance of business models for sustainability transitions: A conceptual exploration of incumbents and business model innovation

The current way of consumption and production is unsustainable in that society is exceeding the earth’s planetary boundaries and creating long-term and irreversible effects on an environmental, social, and economic level. There is a recognized need on all system levels to change the way that we operate. Industry is a key area that requires this attention, as it is largely responsible for the impacts from the production of various societal needs and functions. In particular, the building and construction industry accounts for about 37% of global CO2 emissions. Rapid decarbonization is needed, and technological innovation for electrification, as well as business model innovation towards circularity and sustainability is crucial. With the influence of business on production and the natural environment, it is important to understand how business models can contribute to sustainability transitions. Incumbents have often been perceived as creating barriers towards sustainable transitions, but they also have a large potential to transform industries due to their market power. Previous research has shown that innovative firms are essential for transitions, however, there are not enough insights on how significant business models are for transitions. This paper explores the connections of sustainable business model innovation research with sustainability transitions research and reflects on the ability of incumbents to innovate and contribute to sustainability transitions through insights from a construction equipment manufacturer.