Integrating Sustainability into Profitable Business Models : Transitions and Circular Strategies in Machine Building

Abstract

The concept of a business model is generally how a company operates, connect with business partners and generate revenue across the value chain. Overtime, several business models have focused on financial gain at the detriment of the planet and the people. The machine building industry – one of the largest in manufacturing sector – is a propeller of core economic activities in areas such as lifting, metallurgy, mining, forestry and agriculture amongst others. To address this ambitious desire of profit making, there has been a shift towards incorporating sustainability into operations and processes; and it has also become essential to strike a balance between profitability and social and environmental responsibility. Particularly, in Finland, the industry is becoming more regulated and is under more pressure to use sustainable and circular practices. Still, it is hard to add these sustainability ideas to business models that are already in place.

The study attempts to assess circular and sustainable practices in the Finnish machine building industry, their challenges – internal and external – while incorporating these circular practices, and possible strategies to tackle them. The literature review explores the ESG (Environmental, Social and Governance) factors, business model transformation for sustainability, circular economy and the machine building industry. A qualitative case study was employed, encompassing four Finnish machine building companies. Data was gathered using semi-structured interviews, and companies' annual and sustainability reports were used as secondary sources to complement the main sources. Following the Gioia methodology, the ideas from the data were grouped into first-order concepts, second-order themes, and aggregate dimensions.

The findings revealed eighteen themes which are as follows: optimizing efficiency, enhancing production, mitigating carbon emission, leveraging services, internal operational challenge, lack of data-driven assets, emission challenge, energy efficient solutions, prioritizing customers’ wel-fare, employee’s impact, market setbacks, business-to-customer partnership, cooperation among teams, sustainability agenda or programmes, nuanced conceptions, value creation and reward, measure of sustainability, and regulatory influence. The results indicate that the integration of sustainability occurs via initiatives aimed at reducing emissions, enhancing efficiency, improving production processes, and developing service-oriented offerings. Moreover, businesses constantly face internal issues such as limited data visibility and data-driven capabilities, as well as operational limitations and external pressures, including shifting market conditions and uncertain regulations. The analysis identifies three overarching dimensions—operational integration, employee and market engagement, and policy alignment—that encapsulate the mechanisms by which sustainability is incorporated into the business model.

The study enhances the sustainable business model literature by presenting a framework that links operational, managerial implications with the process model and institutional contributions and roles in sustainability integration. According to the study's findings, incorporating sustainability into business models necessitates cross-functional cooperation within the organization and value chain, a company's dedication to sustainability, and alignment between profitability objectives and ESG. For industrial firms looking to switch to circular and sustainable business models, the suggested model offers useful guidance. Although the study's concentration on Finland and small sample size limit its applicability, its conclusions might be useful in a variety of sectors and regions.