AALBORGUNIVERSITY,JUNE2013
ECO‐BUSINESSMODELINNOVATIONS:
ASEIZINGOPPORTUNITYFORAVV
Semester Project, 2nd
Written by:
Amalia Lelia Cretu
Dragana Zelenbabic
Supervisor:
René Nesgaard Nielsen
Submission Date:
06.06.2013
AALBORG UNIVERSITY, MSc INNOVATION, KNOWLEDGE AND ENTREPRENEURIAL DYNAMICS
Abstract
Our objective in this project is to understand AVV’s current business model and to recommend
alternative business models that would be better suited for the changing waste sector. The knowledge aim
is to bring new understanding to and enable AVV managers to see the opportunities for innovation of
AVV`s business model and thus to contribute to maintaining AVV`s advantageous position. The business
model theory is used as a framework for describing the organisation’s core logic. The main results and the
most important contribution is related to reconsidering AVV’s current business model and recommending
business model innovation by looking at the issues of the waste sector transformations, as a source of
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potential improvement.
Table of Figures
Figure 1 Project Scope .................................................................................................................................. 8
Figure 2 Project Content Flow ...................................................................................................................... 8
Figure 3 Paradigms and Methodological Approaches ................................................................................ 10
Figure 4 Scientific Ideals and Methodological Approaches ....................................................................... 11
Figure 5 Nine Building Blocks of the Business Model............................................................................... 18
Figure 6 Business Environment Challenges and Opportunities .................................................................. 24
Figure 7 Citing factors as motivations for innovating ................................................................................ 26
Figure 8 Eco-Trajectories for Eco-Innovations........................................................................................... 27
Figure 9 Municipal Waste Generated by Country in 1995, 2002 and 2009 sorted by 2009 level kg/capita
.................................................................................................................................................................... 30
Figure 10 Municipal waste treated in 2009 by country and treatment category; sorted by percentage of
landfilling .................................................................................................................................................... 31
Figure 11 Value Chain Analysis for Incineration ....................................................................................... 45
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Figure 12 Value Chain Analysis of Recycling ............................................................................................ 46
Table of Contents
Abstract ......................................................................................................................................................... 1 I. Introduction ........................................................................................................................................... 5 1. Research Background ....................................................................................................................... 5 2. Problem Formulation and Research Question................................................................................... 7 3. Scope of the Project .......................................................................................................................... 8 4. Contents of the Report ...................................................................................................................... 8 II. Methodological Framework .................................................................................................................. 9 1. Research Paradigms .......................................................................................................................... 9 2. Methodological Approaches ........................................................................................................... 10 3. Research Approach ......................................................................................................................... 10 4. Research Strategy............................................................................................................................ 12 Research Design.................................................................................................................................. 12 III. Theoretical Framework ................................................................................................................... 14 1. The Business Model ........................................................................................................................ 14 2. Defining the Business Model .......................................................................................................... 16 Working Business Model Definition .................................................................................................. 16 Application of the Business Model Concept in the Project ................................................................ 17 3. Elements of the business model ...................................................................................................... 18 4. The fit of the business model in the context of a changing business environment ......................... 23 5. Eco and Business Model Innovation ............................................................................................... 25 IV. The Waste Sector ............................................................................................................................ 29 The Company .................................................................................................................................. 34 2. AVV’s Environmental Policy ......................................................................................................... 35 3. AVV`s Corporate Social Responsibility (CSR) Initiatives ............................................................. 36 Page
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V. AVV and Business Model Assessment ............................................................................................... 34 4. Business model assessment of AVV ............................................................................................... 37 Product Pillar ...................................................................................................................................... 37 Customer Interface Pillar .................................................................................................................... 40 Infrastructure Management Pillar ....................................................................................................... 43 Financial Aspects Pillar ...................................................................................................................... 47 VI. Fitness of AVV’s current business model....................................................................................... 49 VII. Potential eco-business model innovations (Recommendations) ..................................................... 51 1. The Zero-Waste Campaign as business model innovation driver ................................................... 51 2. Green Technologies as an eco-business model innovation driver .................................................. 53 VIII. Conclusions ..................................................................................................................................... 54 IX. Limitations and Further Research ................................................................................................... 55 1. Limitations ...................................................................................................................................... 55 2. Further Research ............................................................................................................................. 55 X. Bibliography ....................................................................................................................................... 56 XI. Annexes........................................................................................................................................... 58 Annex Nr. 1 ............................................................................................................................................. 58 Annex Nr. 2 ............................................................................................................................................. 59 Page
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Annex Nr. 3 ............................................................................................................................................. 59 I.
Introduction
“One secret to maintaining a thriving business is recognizing when it needs a fundamental change.”
(Johnson et al., 2008)
Waste management companies that are owned by one or more municipalities are an essential part of the
Danish waste management system. They are responsible for managing all waste generated within their
municipality jurisdiction. The literature about Danish waste model available in English language is scarce
(Hjelmar, 1996) and to our knowledge there is no literature revolving waste management company`s
business logic. Addressing this gap, our project is based on the business model of Danish waste company
AVV. We commence this chapter with a brief introduction of our case, to enable the reader to better
understand the purpose of our research question.
1. ResearchBackground
This project is based on the case of the Danish municipal waste company AVV. The company collects
and provides treatment of waste for citizens and businesses. It was established in 1982, as a partnership
owned by Brønderslev and Hjørring municipalities (www.avv.dk). The company enjoys an exclusive
right, on the household waste treatment and the treatment of the waste from commercial and industrial
sector within Brønderslev and Hjørring. AVV provides a wide variety of services in all spheres of waste
management such as recycling, incineration, landfill, management of hazardous waste, collection of waste
and consulting services. AVV has 100 employees and provides waste treatment for around 105,000
citizens and 2,400 businesses. AVV handles around 140.000 tons of waste a year of which 61% is
recycled, 31% goes to energy recovery through incineration, 7% goes to landfill and 1% includes
treatment of hazardous waste. All AVV`s waste treatment facilities are environmental certificated
(Miljøredegørelse, 2011).
To some people it might sound strange why we emphasize the importance of the business model design
and the business model concept when assessing non-profit, municipality owned company. Some may
wonder why change the AVV`s current business model that is still achieving good results. The main
reason is that the waste sector is now in the period of intensive transformation and keeping the same
business model can translate into the misalignment between environment and the company. We choose
the business model concept because it can enhance planning, change and implementation of a new
incremental adjustment of its business model. However, the Danish waste sector is currently facing the
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Until now the Danish waste sector was less dynamic. AVV continues to realize economic benefits with
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business model through capturing company`s current business model (Linder and Cantrell 2000).
challenges of increasing political demand for sustainable waste management (Copenhagen Clean tech
Cluster, 2012:4). This means a transition from the waste management sector to the resource management
sector, where waste is regarded as a resource. The focus is on recovery, recycling and reuse of resources
and minimization of waste generation. In addition, development of new waste treatment technologies
and the liberalization of waste market will accelerate waste sector transformations (Copenhagen Clean
tech Cluster, 2012). Furthermore, waste legislation framework is changing and the national Waste
Strategy for 2012 set focus on important activities: waste prevention and innovation of waste treatment
technology (www.mst.dk). These changes can challenge AVV’s business model in multiple ways. With
the liberalization of the waste sector, it can be expected that the arrival of new competitors may challenge
incumbent’s business model and cause the loss of AVV’s advantageous position. Moreover, new
technologies can make AVV`s technological competence obsolete. Also, the innovation level of AVV`s
product and services and pricing model will need to be adjusted to the changed environment.
However, identifying that innovation of the AVV’s business model is critical is less problematic
compared to defining what type of business model innovation can be effective in the case of AVV.
The paper proposes that changing the business model, further on also referred to as business model
innovation, is one way to tackle the issues of a changing business environment, however this paper also
considers that firm’s activities should have lower environmental impact through the changes made to the
business model revolving around the concept of eco-business model innovation, or green business model
innovation otherwise named. This proposition comes based on the judgment that although there is a
correlation between a waste treatment company and its impact on the environment, meaning decreasing
the impact as much as possible, the authors of this project also consider that it is not a sufficient condition
to be met by all waste treatment companies. Therefore the issue of not addressing the business model
innovation but the eco-business model innovation is applicable to both waste management companies that
try to lower their environmental impact and those which don’t. The concept of eco-business model
innovation grows continuously not only in the attention of the private sector but also in the attention of
the public authorities who try to create the infrastructure that can foster such types of innovations
(Machiba, 2010). The authors of this project find the importance of recommending eco-business model
innovations when analyzing business model change of AVV to be in alignment with the waste sector
policies which continuously press on the matter of adopting technologies with lower environmental
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impact.
2. ProblemFormulationandResearchQuestion
The current situation of the Danish waste treatment sector is increasingly becoming under the attention of
the national and international public authorities as started debates on the subject of waste sector
liberalization makes municipality-owned waste companies rethink their strategic position on the market
given that they may lose the preferential dominant power incinerating the municipal waste. In the report
Affald og ressourcer (2013), Torben Nøhr, Technical and Environmental director of Køge Municipality,
argues that the Council of Economic Advisors estimated that outsourcing and competitive tendering will
make an efficient waste management sector that can save 350 million kr. /per year. A key goal of the new
policy regards increased recycling and resources extraction out of the waste as much as possible. The
problem for the municipal companies is that many of them have invested in increased incineration
capacity and bounded capital in these plants. The Danish Minister of Environment, Ida Auken, states in
Affald og ressourcer (2013):” We have to make drastic changes in how we understand and consume
resources. One of the places where there is a need for a paradigm shift is the area of waste.”
Therefore, given the shifts currently happening in the waste sector at national level, the following
research question has been formulated:
How can AVV change the business model to fit in the context of a changing waste sector?
In order to answer the main research question, two sub-questions have been formulated in order to get
more insight and outcome of the main research statement. These two sub questions are as follows:
1. What are the most important changes in the Danish waste sector?
2. How does the AVV`s current business model fit in the context of a changing waste sector?
These two questions will be analyzed throughout the whole project of which structure can be seen in the
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Content of the Report section.
3. ScopeoftheProject
This project is to give perspective on one of the many solutions a firm has to a changing environment:
eco-business model innovation. In the graphic below it is represented a direct implication of eco-business
model innovation and the proper use of it: a new improved business model.
Figure 1 Project Scope
Source: Own
A graphical representation of the flow of this project is provided in the figure below:
Figure 2 Project Content Flow
Assessment of the Changes in the Danish Waste Sector
Assessment and Fitness of the Current Business Model
Eco‐Business Model Innovation
Source: Own
4. ContentsoftheReport
Chapter 2 represents the methodological framework of this project which is placed after Chapter 1 so that
a clear understanding of the research question and the project’s design will be provided through the theory
of science. Chapter 3 follows the methodology chapter as to have a description of the theories mentioned
to be used to assess the study case and provide theoretical guidelines for the research question. Chapter 4
announces the empirical part of the project where the presentation of the AVV’s business environment (a
representation of the changes in the Danish waste sector) so that the reader can contextualize the
assessment of the AVV’s business model. Chapter 6 assesses the fitness of the current business model of
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AVV in the context of a changing waste sector. Chapter 7 provides recommendations for AVV business
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assessment of AVV’s business model. Chapter 5 provides a background of the study case and the
model innovations. Chapter 8 provides conclusions on the findings and also answers the research question
of the project.
II.
Methodological Framework
The project’s methodological framework employs the Systemic Approach of Abnor and Bjerke (1997).
Choosing this approach was based on the identification of the research paradigm used by the authors
when investigating for the research question. The following sections will briefly describe all six paradigm
presented by Abnor and Bjerke (1997) as well as the three methodological approaches: the analytical, the
systems and the actor’s approach. The methodological approach leads to the operative paradigm which is
constituted of two parts: methodical procedures (research strategy) and methodics (research design).
Methodical procedures represent how the investigator employs the existing data collection methods and
techniques for the analysis of the research question. Methodics refer to the process of implementing the
projects’ research design which could be of different forms: experimental, cross sectional, longitudinal,
case study or comparative designs.
1. ResearchParadigms
Abnor and Bjerke’s three methodological approaches are based on six paradigms that researchers use
when creating business knowledge. A paradigm represents the way a researcher views the world –
objective or subjective. An objective reality is based on a relation of causality and is not influenced by its
actors and their perceptions. In a subjective reality, the world is influenced by all actors and their
behavior, perceptions and relations. The six paradigms are as follows:
a. Reality as concrete phenomenon that is conformable to law and independent of the observer
b. Reality as a concrete determining process
c. Reality as mutually dependent fields of information
d. Reality as a world of symbolic discourse
e. Reality as a social construction
f.
Reality as a manifestation of human intentionality
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The graphic below represents the six paradigms and the three methodological approaches.
Figure 3 Paradigms and Methodological Approaches
Objective
Paradigms
2
3
1
Subjective
4
5
6
The Analytical Approach
Approaches
The System’s Approach
The Actor’s Approach
Source: (Ingeman & Bjerke, 1997)
As mentioned in the beginning of this chapter, the project will be constructed using the System’s
Approach and as it can be observed from the figure above, this approach corresponds to paradigms
number two, three and four.
2. MethodologicalApproaches
In this section, the three methodological approaches of Abnor and Bjerke (1997) are summarized – the
analytical approach, the systems’ and the actor’s approach.
The Analytical Approach
The reality is objective and knowledge is created independently of the researcher. Reality has a
summative character and the researcher has to identify each part and sum them in order to get the results
of the measured reality.
The System Approach
In this approach the focus is more on the relations that exist between the parts of the system rather than
focusing on the parts of the system. Therefore, in the system’s approach the sum of all parts are not equal
to a system but to something more – a synergetic effect because of the relations between the parts of the
system.
The Actor Approach
The reality is subjective and it is created by its actors and their interactions. The knowledge obtained is
highly subjective and therefore cannot be generalized.
this is why they have a situationalist perspective upon the use of the paradigms – two, three and four
(system’s approach). This also means that when analyzing the project’s problem statement the approach is
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The authors believe that different paradigms helps create a better understanding of the research problem
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3. ResearchApproach
not only objective (paradigm two) but also subjective (paradigms three and four). In this project the
system’s approach has proven to be the most pliable on the research question. Assessing implications of
the waste treatment policies on the business models means a thoroughly understanding of the business
model not only as a system but also as a synergic effect taking into consideration relations between the
parts/elements of the business model. Based on this understanding of the system as a whole, implications
of the policies can be better assessed not only for analysis but also for suitable recommendations on how
to change the business model and as a result suggest business model innovations.
The Systems Approach classifies systems to be either open or closed. Closed systems do not allow
external influences to influence the system while the open system accepts and grows upon the influence
of external factors. The authors categorize AVV as being an open system – the partnership it creates with
different companies and institutions like Aalborg University, and the fact that AVV is managed by a
public institution, the municipality, which means that by status quo, AVV is as an open system.
The chosen approach gives guidelines on the primary data collection method and the best tools and
techniques
to
use.
For
the
system’s
methodological
approach
is
recommended
to
use
interview/questionnaire and case studies as tools and techniques for data gathering. In our project, AVV
represents the single study case (technique) where the authors used as tools the online questionnaire and
two meetings for data collection.
Source: (Kuada, 2010)
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Figure 4 Scientific Ideals and Methodological Approaches
The research strategy and the research design section describe the appropriateness of the tools chosen for
the case study just above mentioned.
4. ResearchStrategy
The research strategy comprises two approaches, the quantitative and qualitative approach. The
quantitative approach uses scientific data and its techniques imply the use of hypotheses and deductive
approaches – the development of a theory starting from the results of an experiment. The qualitative
approach, however, regards the world dependent on actors and the relations between them.
For this project, the qualitative approach is identified to be appropriate as the assessment of a business
model and waste treatment policies requires the use of qualitative data although to a certain degree
quantitative data will also be consulted. Business model pillars related to revenue and cost structures
require the use of analytical data. The qualitative method investigates the ‘why’ and ‘how’ of the research
question, not just the ‘what’, ‘where’ and ‘when’.
ResearchDesign
As mentioned in the introduction of this chapter, there are five options to create a project’s design:
experimental, cross sectional, longitudinal, case study or comparative designs. The experimental design
focuses on primary data collection; cross sectional design implies gathering data from one point in time
but from multiple cases – as opposite to the longitudinal design which collects data from several cases but
over a specific period of time. The study case is a concentrated analysis of a single case – as opposite to
the comparative designs approach which is the analysis of multiple cases. A single study case permits an
intensive analysis of a singular unit focusing on the development and expansion factors in relation to the
context. In this project, the authors try to assess the current business model of a municipal waste
management plant, AVV, combined with the effects of a tightening waste management policy upon the
business’ model. Choosing AVV as a study case gives a greater advantage towards the completeness of
this research question analysis, as the company is currently undertaking actions to comply with the new
requirements of the waste policies such as the Zero-Waste (Nulskrald) campaign.
CaseStudy
The authors of this project use the single case study method to present the empirical findings. The
research is based on internal documents of the company (annual reports and environmental reports), an
on the continuous findings of the team. Therefore the questionnaire was structured in sixteen open
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questions that were not completely answered during the interview meetings but also extra questions based
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online questionnaire and two interview meetings. The questionnaire acts like an auxiliary tool to cover
questions sectioned according to the nine building blocks of Osterwalder and Pigneur’s (2010) business
model.
DataCollection
In a single case study report, several sources of information can be applied to collect both primary and
secondary data. In this project, secondary data was gathered from the internet with the help of search
engines for keywords such as “AVV”, “waste management plant in Denmark”, “Danish environmental
policies”, “waste management in the public sector” and “waste management”. However, few scientific
articles from scientific databases like J-Stor, Emerald, Springer Link, SAGE Journals, Google Scholar,
and online books through the local libraries were used for the search. Some other sources of information
have been used like company’s website and internal documents. The empirical primary data is gathered
from the online questionnaire and the two interview meetings. The face-to-face meetings with the AVV’s
managers were semi-structured interviews, where the interviewee’s answers are open to allow new ideas
to be brought up during the discussion. While a structured interview would have led to direct, objective
answers, due to the newness of the authors in the waste sector, it has been considered that allowing the
interviewee answer to his best knowledge would increase the chances of receiving more information than
envisaged from the questions prepared.
The next paragraph states the methods of research and information sources used for each theory employed
in this project.
The meta-theory of this project is represented by the business model theory of Osterwalder and Pigneur
(2010) focusing on the four pillars of the canvas. For each pillar the method and the sources of
information are stated:

Pillar One: The Product – uses for investigation information from the two interview meetings, the
online questionnaire, AVV’s website and their internal reports such as annual and environmental
reports.

Pillar Two: Customer Interface – employs the same investigation procedures and information
sources as the first pillar.

Pillar Three: Infrastructure Management – employs for investigation the method of value chain
management of Porter’s (1975) using sources of information from the annual reports and the two
Pillar Four: Financial Aspects – for investigation uses information only from the annual reports.
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interview meetings.
“The Waste Sector” chapter uses for analysis information from secondary sources such as Danish
Ministry of Environment webpage, EU waste policies webpages and reports as well as the two interviews
with the AVV director.
The Eco and Business Model Innovation uses both primary and secondary sources of information and
analyses the action of AVV in response to the tightening environmental policies, Zero-Waste campaign
and Green Technologies.
Summary
The methodology chapter described the research method and design of the project in order to tackle the
research question. The research method and design were determined by the chosen paradigms, leading to
the use of the system’s methodological approach. The techniques for collecting primary data were the
online questionnaire and two interview meetings. The research design of the project is a single case study.
III.
Theoretical Framework
The purpose of this chapter is to understand the business model framework that represents the tool used
to describe the AVV’s current business model, and also to propose two potential models. Osterwlader and
Pigneur’s 2010 book Business Model Generation and The business model ontology (Osterwlader, 2004) is
the primary source as it is a widely used and acknowledged “work” within this area. Following in this
chapter, the eco-business model innovation is described, to support our understanding of the process of
creating a new business model.
1. TheBusinessModel
Every company has a business model, whether the model is explicitly or implicitly articulated (Teece,
2010:191). In recent years, the business model has received a significant attention from both academics
and practitioners (Zott et al., 2011: 1019). According to Teece (2010:174) main factors contributing to
increases in attention to business models are emerging knowledge economy, growth of the Internet and ecommerce, the outsourcing and offshoring of many business activities and the restructuring of the
financial service in the world.
In the literature, business models are examined within a wide range of different disciplines. In the
ICT technology and emergency of the e-business models. The growth of the Internet in the 1990s has
been seen as a main driver of rising popularity of the business model concept and literature that focus on
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concept within three research streams. The first research stream focuses on technology, or more precisely
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overview of the business model literature, Zott et al., (2011:1023) identified the use of the business model
how a specific technology affects the organization of the firm and its earning logic. A second research
stream focuses on strategic issues such as value creation, competitive advantage and firm performance
(Zott et al., 2011:1023). The focus is on value creating mechanism as an essential part of the business
model. A third research stream focuses on innovation. Within the later the two roles of the business model
are identified. First, the business model can be seen as a vehicle for the innovation where business model
support technology, product and service innovation. Second, the business model can be seen as a subject
of innovation where the business model is changing and innovating in order to provide competitive
advantage by changing terms of competition (Zott et al., 2011:1033). Business model innovation is
increasingly seen as a key to firm performance and the medium for corporate transformation and renewal
(Zott et al., 2011:1033). However, despite the fact that research on the business model has expanded
rapidly, there is still no shared and generally accepted language that would allow researchers to draw
effectively on the previous work (Zott et al., 2011). Moreover, the business model concept struggles to
gain importance in academic research (Teece, 2010). According to Zott et al. (2011:1020) this can be
explained with the interest in the business model concept coming from a wide range of disciplines. In
addition, Teece (2010) argued that the business model lacks theoretical grounding in economic and
business studies. This can be seen as the reason why scholars have different opinions what the business
model is and how it should be described. Moreover, Zott et al., (2011:1022) notice that the business
model is often studied without defining the concept and taking its meaning for granted (Zott et al.,
2011:1022). This further affects the confusion related to defining business model as a business process or
defining the business model as equal to one element such as a customer relationship (Osterwalder, 2005).
However, one of the most discussed issues has been the relationship between the business model and
strategy. According to Osterwalder (2005), prevailing understanding among business model scholars is
that the business model and strategy are distinct but connected. That is, the business model describes how
the elements in a business fit together while the strategy includes competition and implementation
(Magretta, 2002). On the other hand, Porter (2008) defines business strategy as a plan for success of the
business within dynamic and competitive environment while Osterwalder (2004:14) argues that business
model can be seen as a translation of a company’s strategy into a framework for the economic value
creation. According to Sommer, (2012:50), in a situation where there is no effective fit between the
business model and strategy a company should consider revising the business model or strategy (or both).
It could be drawn from Osterwalder (2004) discussion that strategy, business model and process models
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model acts as a sort of “glue” between business strategy and processes.
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address the issue how to earn money in a sustainable way, on different business layers where the business
2. DefiningtheBusinessModel
There is no generally accepted definition of the business model (Zott et al., 2011). In addition, the
definitions have been subject to much debate since they provide ground for various interpretations (Zott et
al., 2011:1022). A number of researches have been working on identifying differences and similarities
between the various definitions of business models offered in the literature (Osterwalder et al, 2005) (Zott
et al., 2011), Taran (2010), Fielt (2011) to name a few. For example, Osterwalder (2005) classified
business model definitions in three levels.
First level includes definitions that capture business model as an abstract concept that gives an idea of
what business model is (Timmers 1998; Magretta 2002) whereas the meta-models (Chesbrough and
Rosenbloom 2000; Linder and Cantrell 2000; Amit and Zott 2001; Osterwalder 2004) in addition define
elements within the business model.
Second level named “taxonomies” includes several types of business model or meta-business model that
is generic and contains common characteristics (Timmers 1998; Rappa 2001). The business model
taxonomies are applied to the business in general but also to specific industries such as computing (Rappa
2001) and mobile games Moneta et al. 2002).
Third level includes description and representation of real world business models and several researchers
have used business model perspective to analyze companies such as Xerox (Chesbrough and
Rosenbloom, 2002) and Dell (Kraemer and Dedrick et al. 2000). However, these authors differ greatly in
how they describe these real world business models.
Although some of the definitions overlap more than others, it is noticed that most of the definitions refers
to “value” (Fielt, 2011:12). According to Fielt (Ibid., 12) business model definitions are mostly framed
around …”the question of how to create value in the face of a changing business environment”. Some
definitions of the business model are broader and include creation, delivery and capturing value
(Chesbrough, 2006; Johnson, 2010; Osterwalder & Pigneur, 2010; Teece, 2010). Furthermore, Fielet
(2011: 13) noticed that scholars are not precise when using the term value but most often the concept
refers to customer value. In addition, Fielt (Ibid., 13) clarified that value capturing is usually used as equal
to financial return.
WorkingBusinessModelDefinition
Osterwalder and Pigneur, 2010 definition:
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with our interest in this project to analyze how AVV creates, delivers and captures value we adopted
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Based on the discussion that most of the business model definitions are focused on value and in the line
“A business model describes the rationale of how an organization creates, delivers, and captures value.”
(Osterwalder and Pigneur, 2010:14)
The definition is based on synthesis of various definitions in the business model literature and depicts the
core logic behind the business model concept. However, in order to accurately describe the AVV`s
business model we need to know what constitutes the business model. So, we adopt an Osterwalder`s
business model framework which emphasizes on the following nine areas that a business model has to
address: value proposition, target customer, distribution channel, relationship, value configuration,
capability, partnership, cost structure and revenue model.
ApplicationoftheBusinessModelConceptintheProject
After adopting the business model definition it is important to explain why we choose to apply the
business model concept in this project. According to Osterwalder (2004) the business model concept is
suitable for analyzing the logic behind economic value creation. More importantly, it is emphasized that
the concept`s usefulness is not restricted to the profit organizations (Osterwaleder and Pigneur,
2010:263). When applying the concept to the nonprofit organizations it is important to notice, that these
companies have a main focus on social responsibilities, environmental sustainability and public service
mandates. These arguments lead us to see the business model concept appropriate for our project since,
the case company, AVV, is non-profit municipality owned waste management company.
It is also claimed that the business model concept enhances planning, change and implementation of a
new business model through capturing company`s current business model (Linder and Cantrell 2000). In
addition, the business model ontology simplified the design process for managers and researchers, since it
requires that all essential business model elements and their relations should be defined. These arguments
lead us, to describe an AVV’s existing business model, how it can be affected by the waste sector change
and then describe the possibilities of business model innovation.
According to Petrovic and Kittl (2001) capturing the business model can improve management decisionmaking process and reacting to the changing external business environment. The business model concept
is seen as a tool that helps managers to easily modify certain elements of an existing business model and
tackle uncertainty, complexity and rapid changes in the company`s business environment. Therefore, use
of business model concept is seen appropriate since the objective of this project is to propose an
Finally, the business model concept can foster innovation (Zott et al, 2011) and improve readiness of a
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company for unpredictable future (Osterwalder, 2004:22). Identification of nine building blocks and their
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alternative business model that would be better suited for the changing waste sector.
relations allow the manager to design, stimulate and test new business model without risk. In our project,
we will provide AVV with the recommendation for business model innovation and help them to better
prepare for the future.
3. Elementsofthebusinessmodel
Osterwlader`s business model pillars and building blocks will be used to structure the detailed analyses of
AVV present business model elements in this project. The detail description of nine business blocks is
important because it will enhance our understanding of business model elements. In addition, it can be
useful for AVV`s managers if they intend to design, modify and innovate business model themselves.
Osterwalder (2004) identified four main areas or pillars: Product, Customer Interface, Infrastructure
Management and Financial Aspects. While addressing issues related to the Product area, company or
researcher needs to reflect on the products and value propositions offered to the market. In the Customer
perspective there is a need to reflect on the company`s target customers, relationship with them and how
products and services are delivered. In the Infrastructure Management pillar there is a need to reflect on
the value creation aspect of the business model. Finally, in the Financial Aspects it is important to
examine the revenue model, the cost structure and the business model’s sustainability (Osterwalder, 2004:
42). Further, author decomposed these four elements into interrelated nine building blocks or business
model elements. These elements are value proposition, target customer, distribution channel, relationship,
value configuration, capability, partnership, cost structure and revenue model.
Source: (Osterwalder, 2005:18)
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Figure 5 Nine Building Blocks of the Business Model
TheProductPillar
The Product pillar (Osterwalder, 2004:49) refers to the company`s bundles of products and services and
how the company differentiates itself from its competitors. The Product Pillar contains the Value
Proposition that can be decomposed into Offering (s). A Value Proposition creates value for the Target
Customer(s).
The Value Proposition is the first element of the business model ontology and describes how items of
value such as product and services are offered to customers in order to fulfill customer needs. An Offering
refers to a specific product or service or service feature and describes the assumed value to the customer.
By describing, identifying and comparing different components of a Value Proposition with competitors,
a company can detect opportunities for innovation and improve its competitive position. A Value
Proposition and Offering can be characterized by attributes Reasoning, Value Level, Price Level and Life
Cycle (Osterwalder, 2004:50). Reasoning refers to the explanation why Offers could be valuable to the
customer. Usually value is created through the use of a bundle of products and services when a product
or service attributes (features, design, value added-services) match to customer needs. A value can be
created by reducing customer risk such as financial risk or risk of poor performance. In addition, value
can be created by reduction of customer efforts (Osterwalder, 2004:51).
Value Level refers to identification of utility to the customer by defining the value level of a company`s
offer. Value level can be Identified along a qualitative scale ranging from “me-too” value, “innovative
imitation”, “excellence” to “innovation” (ibid., 51). A “me-too” level means that the products and
services offered are similar to existing markets offer, but differentiation can be made through price.
Innovative imitation means that company adds some innovative elements to standard bundles of product
and services. Excellence refers to perfected value usually combined with significant fee. Innovation refers
to the introduction of new product and service or innovative combination of the same. The Value Level
attributes needed to be studied related to Price Level attribute (Osterwalder, 2004:53). The Price Level
compares the company`s value proposition price level with competitors. Price Level attributes can be
defined as “free”, “economy”, “ market “ and “high end”. Some companies offer Value Proposition
without financial compensation because their business model has other sources of income such as
deriving revenues from other non-free activities. Economy means that company offers lower prices than
most of its competitors. Pricing at the Market refers to price close to average in the market. “High-end”
can be generated at creation, purchase, use, renewal and transfer of the Offering.
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The last attribute, Life Cycle describes stage (s) of the value life cycle an Offering creates value. Value
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prices are common for luxury segment and innovations.
TheCustomerInterfacePillar
Customer Interface (Osterwalder, 2004:60) includes all customer related aspects. This covers the elements
Target Customer, Channel and Customer Relationship. The elements Channel and Customer Relationship
form a link between the Value Proposition and the Target Customer.
The Target Customer is the first element of the Customer Interface. A Target Customer defines the groups
of customer a company wants to reach and serve. A critical issue is effective segmentation that allows
alignment between the Value Proposition and specific segment needs. A company can identify and serve
one or several customer segments. Osterwalder (2010:20) suggested segmentation of the customers based
on different needs, distribution channels, types of customer relationship, levels of profitability and
customer willingness to pay for certain attribute of the offer.
According to the Sommer (2012:59) definition of the customers that comprises just target group is narrow
especially for social and green business model. Author argued that green business model Value
Proposition often needs to appeal to other groups if they can influence a company’s success. For
example, regulators can make a green business model feasible through subsidiaries and taxes on less
green models (ibid., 59).
The second building block of the Customer Interface is the Channel (Osterwalder, 2004:63). A Channel
defines how Value Proposition is delivered to the Target Customer. Communication, distribution and
sales Channels comprise points of touch between company and customer with strong effects on customer
experience (Osterwalder, 2010:26). Channels can be direct, indirect, owned and partner channels. Usually
company use mix of several Channels. Channels can cover five different phases in value life cycle:
Awareness, Evaluation, Purchase, Delivery and After Sales. Each channel can cover all or some of these
phases. Further, Channel can be decomposed into Links. Links describes a specific channel roles or
specific marketing tasks. Osterwalder (2004:64) propose the identification of different Channels and
Links in order to prevent channel conflict and overlapping activities. In addition, the author argued that
Links can contribute to the company`s Value Proposition. Channel Link may become a value-adding
component of the value proposition through the use of the channel (e.g., on-line help), by reducing risk
(through baying recommendation) and customer efforts (e.g., on-line sales).
The third building block of the Customer Interface is the Relationship element. The element describes the
equity goals such as customer acquisition, customer retention and boosting sales (add-on selling)
Osterwalder (2004:72). Customer acquisition needs to be wisely managed and evaluated because
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attributes Customer Equity. This means that customer relationship may be driven by different customer
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relationship a company establishes with customer segments. The Relationship is characterized by
retention and selling of the additional products are strongly influenced by this phase. In addition,
customer acquisition is more costly than customer retention. Therefore, it is important to use mechanisms
to prolong the relationship between company and customer e.g. to retain a customer. Osterwalder
(2004:73) emphases three factors of customer retention: loyalty programs, customer defection programs
and installment of switching costs. Also, the company can increase revenues by selling additional product
and services to existing customers. Hence, it is emphases that the company need to carefully consider
between different customer equity goals in order to decide about the type of the customer they want to
acquire, retain and are likely to be subject of add-on selling. Further, the company needs to select
relationship mechanism that will enhance the acquisition, retention and selling of the additional services
and products (Osterwalder , 2004:71).
The relationship building block can be decomposed into the relationship Mechanism (Osterwalder,
2004:73). A Mechanism can contribute to the Value Preposition in three ways: through use, reduction of
risk and reduction of customer`s efforts. The Function is an attribute that characterized Mechanism.
Function describes the role that relationship mechanism fulfills. Mechanism can personalize a
relationship, contribute to customer trust or contribute to brand building (Osterwalder, 2004:74). Today,
personalization can be economically realized with the help of information technology. One of the
important mechanisms is “one – to – one” marketing. Using this type of marketing, the company designs
marketing activities to meet specific customer needs, behaviors and previous transactions. There is also a
possibility for “one – to – tribe” marketing where marketing activities are designed to target group of
customers with common characteristics. Further, personalization can be achieved through an online
recommendation system. Personalized customer relationships can positively affect customer loyalty.
Trust is needed precondition for conducting any business transaction. New mechanisms for building trust
emerge through advancement of information and communication technology. Osterwaleder (2004:75)
identified new instruments of building reputation and trust such as virtual communities, dedicated
reputation systems and third party certification, verification and labeling services. Virtual communities
present a powerful instrument for building trust because they provide independent information about
customer experiences without the influence of company and advertisers. A similar mechanism is
reputation system that provides information about a company`s performance history accumulated via
feedback of second parties. Third party certification, verification and labeling system present important
trust mechanism especially in the environmental domain (Sommer, 2012: 59). Therefore, companies
In the business model ontology Osterwaleder (2004:76) defined brand mechanisms as a set of activities
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that are directed to identity and brand building. Author considers brand to be very important for
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strive for different green labels to ensure that consumers and other stakeholders perceive them as a green.
developing and maintaining competitive advantage. Well–established brand can help companies to choose
the right communication programs to customer. In addition, it is noticed that every interaction that
company have with customers and its environment shapes a brand of a company. Thus, the brand and the
identity building are seen as a result of activities conducted by the company. However, Sommer
(2012:61) identified “user generated branding” where individuals publish company`s brand related
content via Internet with strong impact and wide reach. Therefore, companies try to benefit from this new
phenomenon by intentionally fostering such activities through corporate blogs in order to build trust and
positive brand (Burmann and Arnhold, 2008 as cited in Sommer , 2012:61).
Related to Relationship element Sommer (2012:61) emphases the importance of a broader understanding
of the target groups in the context of certain business models such as green business models. This means
that target groups can include regulators and NGOs that support business model without formal
agreement.
The above described pillars presented the building blocks that show the value offered to the customer and
how it is delivered; however, the last two pillars describe the building blocks that show how the economic
value is created by the firm and its partners, and the general financial condition of the model.
InfrastructureManagementPillar
One of the most complex pillars of the business model, Infrastructure Management comprises three
building blocks: Capability, Value Configuration and Partnership.
The Capability block describes the ability of the firm to use Resources in order to create value; therefore
capabilities rely on company’s resources. Osterwalder (2004, 79ff) argues that resources are tangible,
intangible and human. Sommer (2012, 63) however thinks that “for the business model, only key
resources are of interest.” Osterwalder (2004, 82) considers also that depending on the industry and
company, resources have relative importance.
The Value Configuration block describes how the firm arranges its activities to support the creation of
value. Therefore the Value Configuration is tied to the company’s activities. The configuration has three
types: the classic value chain of Porter (1985), and two other extensions of Stabell & Fjeldstad (1998)
which will not be approached in this report, value shop and value network. The classic value chain has
two types of activities: primary and supportive. Primary activities the ones creating and delivering value
technology development, human resource management, and firm infrastructure (Porter 1985).
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service. The supporting activities allow primary activities to take place. These activities are procurement,
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to the customer such as inbound logistics, operations, outbound logistics, marketing and sales, and
The Partnership block describes the agreements of the firm with external parties in order to create value.
Partnerships offer the possibility for the firm to tap into other ways of value creation. Partnerships create
social capital but also represent a valuable resource in itself (Sommer, 2012, 64). Osterwalder (2004, 90f.)
argues on four theoretical perspectives that a company can think when deciding to engage in partnering:
TCE (or whether doing the operations in-house is more expensive than outsourcing them), RBV (or
acquiring external resources to gain competitive advantage), organizational learning (or sharing
knowledge can manifest into mutual advantage) and co-opetition (or cooperation between competitors
that can create winning situations for both parties).
FinancialAspectsPillar
The last pillar, Financial Aspects (Osterwalder 2004, 95ff.) describes the economics of the business
model. It is composed of the Revenue Model and Cost Structure.
The Revenue Model takes into consideration two elements: Revenue Streams and Pricing Mechanism.
Revenue Streams can be selling, lending, licensing, transaction cut and advertising. Sommer (2012, 66)
argues that another “important revenue stream-related concept in the sustainability context that
Osterwalder does not mention is servicing. The concept aims to substitute selling physical products and
material use with the provision of services instead.” Pricing Mechanisms has developed in tandem with
ICT; therefore Osterwalder (2004, 98ff.) distinguishes three generic methods for pricing:

fixed pricing

differential pricing

market pricing
The Cost Structure section is left rather “shallow” by Osterwalder and it should describe the cost
structure of the business model based on accounts. “He remarks that Accounts can be defined very
detailed or as aggregates of expenditures.” (Sommer, 2012, 66)
4. The fit of the business model in the context of a changing business
environment
“To innovate your business model, you must first understand what it is, and then examine what paths
exist for you to improve upon it.” (Chesbrough, 2007)
to use Johnson’s et al. (2008) classification to identify whether a firm should engage in changing their
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business model given certain challenges or opportunities. Business model innovation may be to some the
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This section describes the managerial rationale before pursuing business model innovation and proposes
right choice to do to change the current business model given both challenges and opportunities from the
business environment. However, some scholars, among which Johnson et al. (2008) argues that
companies should engage in business model innovation only if there is an opportunity or a need identified
that consequently adds more value for the customer. As the business model innovation requires financial
resources and time, Johnson et al. (2008) says “Decide whether reinventing your model is worth the
effort. The answer’s yes only if the new model changes the industry or market.” Therefore, it is important
to assess beforehand whether a changing environment represents a threat to the firm’s competitive
advantage.
Johnson et al. (2008) synthesized a list of five opportunities and needs that if identified in the firm’s
environment, a firm should engage in changing their business model. The next figure represents the
synthesis followed by a short summary of each of the opportunities/needs mentioned.
Figure 6 Business Environment Challenges and Opportunities
An opportunity
to...
A need to...
•...address through disruptive innovation the needs of large
groups of potential customers
• ...capitalize on a brand new technology
• ...bring a job-to-be done focus where one does not yet exist
•...fend off low-end disrupters
• ...respond to a shifting basis of competition
Source: (Johnson et al., 2008)
Johnson et al. (2008) identifies that changes to the business model can be done when there is an
opportunity to address through disruptive innovation the needs of large groups of potential customers
which are not satisfied by the current solutions which may prove to be either too expensive or too
complex. Also, a company can capitalize on a new technology by bring it to the market through a changed
business model. A ‘job-to-be-done’ represents an opportunity for the firm to change its business model by
satisfying an unmet demand from the customers regardless whether through the use of advanced
technologies or not. Fending off low-end disrupters represents a driver of business model change as they
can satisfy the same customer needs but at lower prices. A shift in the market competition represents as
well a need of the firm to change its business model in order to secure its market position. Therefore, in
model theory followed by an assessment of the businesses’ fitness into the changing environment. If
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changes in the business environment will be identified both opportunities and challenges as those just
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this project it is also needed to firstly assess the business model of the study case using the business
classified by Johnson et al. (2008) recommendations will be provided to the managers of business to take
into consideration business model innovations and depending on the type of change, to consider ecobusiness model innovation.
The authors of this project are aware of the limitations of this synthesis proposed by Johnson et. al (2008),
however it represents a starting point for arguing why and under which circumstances it is recommended
a company to change its business model. Limitations of the synthesis stand in the depth of the reasoning
to change the business model as companies can change their business model for reasons not mentioned in
this synthesis.
5. EcoandBusinessModelInnovation
This section explores in-depth the concept of changing the business model as referring to it as business
model innovation; however the basis of the section stands in the description of the eco-business model
innovation, a specific form of business model innovation in relation to the firm`s environmental impact.
A business model represents a static picture of the company’s business logic at one point in time,
meaning that different snapshots can comprise different business models of the company. In a competitive
and dynamic environment a viable current business model may be obsolete the next period. According to
Lindgardt et al. (2009) business model innovation is when two or more elements of a business model are
‘reinvented’ to deliver value in a new way, as it involves a coordinated set of activities and it is
challenging to execute and difficult to imitate. However, it can address “disruptions” - such as regulatory
or technological shifts – “that demand fundamentally new competitive approaches” (Liina, 2012).
Business model innovation allows business models to change - incrementally or radically. However,
drivers of change can be internal and external. In this report, the focus is solely placed on the external
drivers of business model innovation. Internal drivers refer to alliances with stakeholders, the style of
governance and company leadership (managerial cognition) (OECD, 2013). As the external environment
constantly change there is a need for continued adoption of a company`s business model. External drivers
can be “market forces, industry forces, key trends, and macroeconomic forces” (Osterwalder & Pigneur,
2010). Therefore, the ‘market forces’ impacting the evolution of a business model comes from market
segments, needs and demands, market issues, switching costs and revenue attractiveness. ‘Industry forces’
constraints come from suppliers and other value chain actors, stakeholders, competitors, new entrants,
the economic infrastructure, commodities and other resources, capital markets and global market
conditions.
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societal and cultural trends, socioeconomic trends. Last but not least, ‘macroeconomic forces’ come from
25
substitute products and services. ‘Key trends’ constraints comprise regulatory trends, technology trends,
This report, however, concentrates on the analysis of external drivers of business model change such as
‘key trends’, more specifically only regulatory and technological trends, however political and
competition aspects are approached as well, as the authors of the project believe that these four represent
major forces of transformation at the moment for the waste sector.
On a broader level, eco-business model innovations are supported by policy initiatives and requirements
at the supranational, national and local level, along with general framework conditions that can play an
important role in introducing and diffusing business models for eco-innovation. “Some literature shows
that several eco-innovations were developed partly as a consequence of strong political support from
national governments, providing a clear vision and objectives and a high level of regulatory stability and
stringency.” (OECD, 2013) This is important for the argumentation that the Danish waste sector policies
are strongly related to the supranational legislations such as those of EU and the current changes that are
undergoing in the Danish waste sector are aligned with a direction towards diffusion of eco-innovations.
The following graphic represents the trends of the most important motivation for firms to innovate.
Figure 7 Citing factors as motivations for innovating
Source: (OECD, 2013)
It is important to mention that the authors of this report use the concepts such as, ‘eco-business model
cleaner production, eco-efficiency measures, and eco-design and green products (OECD, 2013) These are
however powerful tools to improve efficiency, as they can be introduced within the existing production,
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Businesses often apply easy to manage, relatively cheap solutions to implement such as pollution control,
26
innovation’ and ‘green business model’ interchangeably.
process or business systems, without changing the underlying "technological regime" (OECD, 2013)
These solutions generate results relatively quickly, “having enabled substantial environmental
improvements over recent decades, and thus contributing to a relative decoupling of economic growth
from environmental pressure”. (ibidem)
In order to create business model innovations, the authors of this report believe that one must first
understand the current business model of a company in order to proceed with modifications that
eventually might change the business model and also might change it into a green model.
It is important to mention that not only business innovations have to be green but also they have to be
economically advantageous for the firm to implement them. Ekins (2010) argues that for any product or
process which delivers improved environmental performance, there are three trajectories:

It immediately delivers improved economic and environmental performance;

It does not deliver immediately improved environmental performance;

It does not deliver immediately improved economic performance, but it might be a potential ecoinnovation.
Liina (2012) has classified possible eco-trajectories starting from Machiba’s (2010) classification on the
types of eco-innovation’s impact.
Source: (Liina, 2012)
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Figure 8 Eco-Trajectories for Eco-Innovations
This represents a method to visualize innovation that can become eco-innovations based on the timeframe
of their result. In this project, the proposed eco-business model innovations from the empirical section
can be classified according to the eco-trajectories depending on their economic or environmental
performance.
Eco-innovation has multiple definitions throughout the literature; however, distinguishing between
innovations and eco-innovations it is important. Not only that eco-innovation shares the same
characteristics as an innovation (both technological and non-technological) but it represents innovation
which explicitly emphasizes the reduction of environmental impacts, whether intended or not. Ecoinnovation can include both environmentally motivated innovations and unintended environmental
innovations, as the environmental benefits of an innovation may be a side effect of other goals such as
reducing costs for production or waste management (MERIT et al 2008, cited via Machiba 2010, p. 359).
Therefore, our working definition for eco-business model is referring to fact that any changes to the
business model can be green innovations as long as successfully value-capturing changes reduce the
company’s ecological footprint of a product/service.
Lastly, it is important to tackle the issue of inhibiting barriers to adopting business models for ecoinnovation. The literature shows that green business models face a range of barriers when getting
implemented. Again, such barriers can be internal and external:

Internal: traditional mind-set, lack of competencies and knowledge of sustainability issues, lack
of departmental integration, increased development and production costs, insufficient R&D
capabilities and funding;

External: lack of market-pull; limitations of environmental tax legislation; lack of green public
procurement practices; lack of regulation; lack of capital for initial investment of eco-innovations.
Barriers for adopting eco-business model innovations can exist in any company regardless of the sector,
private or public. For this project, it is important to assess whether there are possible barriers to prevent
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eco-business model innovation to be adopted.
IV.
The Waste Sector
Before going through the AVV’s business model the interesting thing would be to describe the identified
changes within the Danish waste sector and reflect upon the most important changes that may challenge
the company’s current business model and represent opportunity for business model innovation.
While searching for information on this topic we discovered two reports that will be central for our
argumentation for the waste sector transformation in Denmark. The reports are “Affald og ressourcermellem marked, miljø og forsyningssikkerhed”(Teknik and Miljø / Nr.04. April 2013) and Denmark: we
know waste (Copenhagen Clean Tech Cluster, 2012). Also, more information and knowledge related to
waste sector was obtained through an interview with the AVV`s director, Steen Madsen. Some additional
information about the Danish national waste policy and strategy we found on the homepage of
the
Danish Environmental Protection Agency.
In the report “Affald og ressourcer-mellem marked, miljø og forsyningssikkerhed” (Teknik and Miljø /
Nr.04. April 2013:9) the Minister of Environment of Denmark, Ida Auken, stated:” We have to make
drastic changes in how we understand and use resources. One of the places where there is a need for a
paradigm shift is waste sector.” According to the report this means the beginning of the modernization
and transition from the waste management sector to the resource management sector.
The political demand for the paradigmatic shift is a result of the concern related to the municipal waste
generated in Denmark (Teknik and Miljø / Nr.04. April 2013). According to the Eurostat (Environment
and Energy statistic in focus, 31/2011:1) the municipal waste generation in 2009 in Denmark was 831 kg
per capita and presented the highest rate of municipal waste generated when compared to 27 EU Member
States. It is argued that the variation in the amounts of the municipal waste generated reflects variations in
the consumption patterns and economic wealth of the countries (ibid., 2). In addition, the amount of
municipal waste generated increased between 1995 and 2009 with the highest annual growth rates
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recorded in Malta (3.9%), Greece (3.3%) and Denmark (3.0%).
Figure 9 Municipal Waste Generated by Country in 1995, 2002 and 2009 sorted by 2009 level kg/capita
Source: (Eurostat 31/2011:1)
Therefore, waste generation and consumption patterns are seen as the biggest problems that need to be
solved in the future (Teknik and Miljø / Nr.04. April 2013:9). The Minister of Environment of Denmark,
argued that the solution could be found through waste prevention, increased recycling and ensuring that
valuable resources do not end up in landfill or in incineration plants ( Teknik and Miljø / Nr.04. April
2013:9).
The political requirement for the waste sector reorganization may come as a surprise when we take into
account that the Danish waste model has achieved quite fine results comparing the rest of the EU (Teknik
and Miljø / Nr.04. April 2013:9). For example, Figure 10, page 31 shows differences in the management
of municipal waste related to four treatment categories: landfill, incineration, recycling and composting.
In spite of the increase in waste generation from 1995-2009 in Denmark, the country is very advanced in
diverting municipal waste from landfills due to implementation of national measures to reduce landfilling
such as a ban on landfilling combustible waste since 1997. Therefore, in 2009, Denmark reported 5% rate
of landfill of municipal waste. In addition, waste has to be recycled, treated by anaerobic digestion or
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EU-27 with 48%, matched only by the incineration rate of Switzerland (49%) (Eurostat 31/2011:4).
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incinerated. These strategies give Denmark the second highest incineration rate for municipal waste in the
Figure 10 Municipal waste treated in 2009 by country and treatment category; sorted by percentage of landfilling
Source: (Eurostat 31/2011:1)
High incineration rates in Denmark are explained by the so called “The Danish Waste Model”
(Simonsen), 2006:1). A model was developed in the 1980s, and places responsibility for the treatment of
all waste (household, commercial and industrial waste) on the local authorities (municipalities). Local
authorities direct non-recyclable, combustible wastes to a nonprofit –incineration plant. The energy of
combustion of waste is recovered as electricity and heat. The result of combustion of the waste is also
bottom ash that is almost 100% reused for civil engineering purposes (Hjelmar, 1996:391). This means
that the incineration costs are reduced significantly and 70% can be covered by the energy sale
(Simonsen, 2006:1).
Local authorities also assign recycling, treatment and disposal facilities for commercial and industrial
waste. On the other hand, producers of commercial and industrial waste are obliged to use these facilities
(ibid., 1). In order to be able to handle the waste management task, most of Danish municipalities
established inter-municipal waste management companies. According to Simonsen (2006:1) sixteen of
they can show neither a profit nor a loss (ibid., 1). In addition, it is argued that the Danish waste system is
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The Danish waste-to-energy facilities work is based on “cost coverage principle” and this means that
31
the waste management companies owned a waste-to energy-facility.
relatively cheap when compared with other countries (Teknik and Miljø / Nr.04. April 2013). However,
The Danish Environmental Protection Agency notices that there is a potential for an efficiency
improvement from 8% to 10% that can be realized by liberalizing incineration sector (Teknik and Miljø /
Nr.04. April 2013).
According to the report (Teknik and Miljø / Nr.04. April 2013) liberalization of Danish waste sector aims
to ensure competition for waste resources, higher level of recycling and the lowest price for the
businesses and citizens in Denmark. For the incineration sector this would mean that municipality would
lose their right to operate incineration treatment facilities. This plan is supported by the findings of the
Interdepartmental Working Group established in December 2010, that recycling in municipalities that do
not own or are co-owner of a waste incineration facilities is 7% higher than in municipalities that own the
incineration facilities. In addition, liberalization of the waste sector is seen as a one way to ensure
implementation of new and innovative technologies and methods of waste treatment (Copenhagen Clean
Tech Cluster, 2012).
For decades, waste incineration with energy recovery has constituted an important part of the Danish
waste management system (Simonsen, 2006:1). However, Denmark is also one of the leading countries
providing new and innovative waste management technologies (Copenhagen Clean Tech Cluster, 2012).
Danish companies had developed a number of new waste management techniques, which reuse or recycle
specific waste such as glass bottles, gypsum, PVC, stone wool, car tires and wind turbines. Also, there are
several technologies available for the reuse and recycling of the biological waste. A great potential has
also been recognized in using food waste, separated municipal solid waste and sewage waste for the
biogas production process. Further, the technology called “REnescience” enables separation of the
biological waste fraction of household waste using enzymes that further can be used for a production of
the bio fuel (Copenhagen Clean Tech Cluster, 2012).
Further research reveals that it is important to gain knowledge about a Danish waste legislation
framework to understand to what extent it affects AVV’s business logic. On the homepage of the Danish
Environmental Protection Agency and of the European Commission, the Danish waste legislation and
policy is characterized by close interaction with EU regulations. This means that EU directives set the
overall principles that must be implemented and organized according to the national law. The
fundamental principal of the EU waste policy is a hierarchy for the treatment of the waste which specifies
In accordance with the EU directives, the aim of the Danish waste policy is to reduce the environmental
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waste recycling, recovery and disposal at a landfill (ec.europa.eu).
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that waste should be treated in order of priority: prevention of waste production, preparation for re-use,
and climate effects from the waste (www.mst.dk). In addition, the policy has a specific focus on the use of
resources (www.mst.dk). The policy objectives were formulated precisely in the Danish Waste Strategy
2009-2012 (www.mst.dk), and requirements are that minimum 65% waste must be recycled, maximum
6% must be landfilled and the remaining waste must be incinerated. More precisely, in 2012 the strategy
set new objectives for treatment of waste from different sources such as private households and industry.
For example, in 2009, 12 % of domestic was recycled, 88 % were incinerated and less than 1 % were
landfilled. In 2012 new objective was to increase recycling for 8% (Affaldsstatistik 2009 og
Fremskrivning af affaldsmængder 2011-2050).
In order to meet the new objectives the Waste Strategy 2012 has focused on the two most important
activities: waste prevention and innovation of waste treatment technology (www.mst.dk). This is an
important change, since the Waste Strategy in 2009 has outlined the incentives for incineration capacity
increase as an answer to a rising amount of waste being produced in Denmark. Now, waste prevention
incentive is in harmony with the EU waste hierarchy that gives first priority to decrease of the amount of
waste generated by consumers. Also, new and innovative technologies for collecting, sorting and
treatment of waste are seen as an important answer how to meet these goals.
In addition, waste management sector will be regulated with the new Resource Strategy. The minister
stated: “We need a Resource Strategy that addresses this development. With Resource Strategy, by the
2050 we will undertake a fundamental transition from focusing on handling a waste problem, to focus on
the opportunity, that is resources” (Teknik and Miljø / Nr.04. April 2013).
It is important to note though that the Danish Waste Association, which includes 52 municipalities and
waste management companies, does not share the perception of a need for waste sector transformation
especially related to the liberalization of the incineration sector. AVV is well aware of the changes in their
business environment, and when asked about it, AVV`s director Steen Madsen has not yet reached a
conclusion about how they will adapt to it. Still, the waste sector transformation is seen as an opportunity
for AVV. However, AVV`s manager is very clear in that they prefer a solution where they can continue
with their activities as they are performed now. This is especially emphasis related to incineration
technology. Steen Madsen stated: “We have resources and we have a big oven that turn waste to
electricity and heat. We can do that at very competitive price, so all the citizens of Brønderslev and
Hjørring who owned the same pipe system are very happy about us doing it because we can do that at a
Knowing that the AVV would therefore have to change their business model to be better suited for the
33
changing waste sector, first we will assess the current business model and in the next chapter the intention
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very low price.
is to is to identify which of these changes can be seen as an opportunity or challenge for the AVV’s
current business model and therefore potentially lead to the business model innovation.
V.
AVV and Business Model Assessment
This chapter introduces relevant information about AVV, the company`s environmental policy and a
description of the Zero Waste project in order to prepare our reader for the following description of
AVV’s current business model. AVV’s homepage and The Environment report for 2011
(Miljøredegørelse, 2011) are used as a source of information.
1. TheCompany
AVV is a company providing services in the waste management field. The mission of the company is to:




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“Be a knowledge and waste center in North Jutland”
Provide total waste management solutions to businesses and citizens
Reduce the environmental impact of waste management
Utilizing waste resources by recycling and incineration
“Ensure that employees have a safe and rewarding working environment.” (www.avv.dk)
AVV handles around 140.000 tons of waste a year of which 61% is recycled, 31% goes to energy
recovery through incineration, 7% goes to landfill and 1% includes treatment of hazardous waste.
(Miljøredegørelse, 2011) The company provides a wide variety of services in all spheres of waste
management:

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
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Recycling
Incineration
Landfill
Management of hazardous waste
Collection of waste
Consulting services
Research and Development
AVV I/S has a range of modern and waste treatment facilities (www.avv.dk)
Waste center Dronninglund receives a large load of waste such as brick and concrete debris. The
incineration plant receives municipal waste, combustible waste, commercial waste, clinical waste and
waste in small quantities. Environment plants receive auto glass, garden waste, ceramic, debris, oil and
china, clean soil, special waste, pressure-treated wood. Receiving Station Vendsyssel I/S receive and
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cardboard; paper, plastic, glass products, PVC plastic and metal. Recycling places receive all kinds of
34
sewage sludge. Recycling center accepts electronics, bottles and jars, confidential paper, appliances,
process hazardous waste. In addition, AVV has a Driving Unit that collects waste from citizens,
institutions and businesses.
AVV is owned by two municipalities: Brønderslev and Hjørring. The company`s work is based on a
“non-profit-cost-coverage principle”. This means that they can show neither a profit nor a loss
(Simonsen, 2006:1).
AVV’s 100 employees provide waste treatment for around 105,000 people and 2,400 businesses. AVV is
also working through information campaigns and education initiatives to raise awareness and knowledge
about the waste and the individual’s role in the environment and climate change. Every year AVV
receives more than 50,000 visitors, including preschoolers, pupils, senior citizen, associations and clubs.
Visitors have the opportunity to visit the facilities and participate in courses about consumption, waste,
recycling and environment. In addition, AVV provides free advice and guidance on the management of
waste for the companies and individuals.
2. AVV’sEnvironmentalPolicy
AVV’s and the Receiving Station Vendsysssels (MV) core task is to provide waste management solutions
that will have the least possible environmental impact (www.avv.dk). The guiding principle of waste
management in AVV is “Think of the environment first.” (Miljøredegørelse, 2011). AVVs and MVs
environmental policy is based on the following priorities:
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Transform the perception of waste from being seen as “waste” to being valued as a “resource”
Delivering green growth
Reducing waste locally, disposal and use energy globally
Develop innovative and environmentally sound solutions in collaboration with others
Strength consumer power of the environmental frontrunners
Be a 100% green company
Be at the forefront in relation to employee safety and health (www.avv.dk)
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 “Increase and improve the quantity of waste for recycling
 Ensure the continuous development of technology and pollution prevention at all facilities
 Provide credible and mature solutions for waste disposal
 Develop sustainable green business ideas
 Shape attitudes and understanding of users
 Develop a team culture with focus on the environment
 Establish partnership with relevant environmental and consumer groups”. (www.avv.dk)
35
In order to fulfill these priorities AVVs action plan is:
3. AVV`sCorporateSocialResponsibility(CSR)Initiatives
During the last few years AVV executed several projects seen as (CSR) initiatives such as
implementation of environmental management system, programs to minimize CO2 emissions and
programs for improving employee safety and preventing occupational injuries and illness (www.avv.dk).
The project named “Nulskrald” or “Zero-Waste” is an example of such initiative (www.avv.dk). The aim
of this project is to collect new knowledge on how people behave in terms of what they do with waste in
Denmark. In addition, the project’s ambition is to evaluate possibilities for behavior changes related to
shopping, waste sorting and recycling.
AVV’s director, Steen Madsen, explains the logic behind this project:
“We decide instead to see things change; we would rather take another role in it and be an active part
and be a part of the change and show the change. Why don't we use our money for this very good cause?
We do it because we feel in our heart - it is a very good thing to do and because everybody in the western
world can see we need to do something.”
AVV invited all interested households in Brønderslev and Hjørring municipalities to take part in the
project (www.nulskrald.dk). 105 households have signed up for the five-week trial period. During trail
period families are asked to reduce their waste outcome as much as possible, sort waste better, compost at
home and shop wisely.
Participants are called to share their experience, ideas and knowledge via AVV’s Nulskralds (ZeroWaste) Facebook page, Nulskralds (Zero-Waste) Website and via mail contact between AVV and
families.
“The Zero-Waste’s main focus is how you do things in your kitchen. And we did not do anything. We
just talk to people. Families should tell us how you could do differently. Do the right things and we will
help you and we will put the Facebook page.”(Steen Madsen)
Zero-Waste project is a collaboration between AVV, Aalborg University, Brønderslev and Hjørring
municipalities. Aalborg University supported the project through Solution Hub, which is a learning
platform for collaboration between students and external partners. Through Solution Hub we have been
“During the five-week period we weight remaining waste that they have before and after. It turns out if
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According to Steen Madsen the result of the Zero Waste project is remarkable.
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honored to participate in this project.
they are little engaged they produced 15% less. That is huge compared to other campaigns we have.”
In addition, the campaign had a significant effect on consumer behavior.
“Now they say the period is stopped but we would like to do it more because it feels like the right thing to
do and we think maybe we can do small things.” (Steen Madsen)
We saw this project as a good approach how waste companies as AVV and the two municipalities can
support the waste hierarchy principles and increase knowledge about waste and the environment.
4. BusinessmodelassessmentofAVV
The purpose of this chapter is to bring a stronger understanding on how AVV is currently functioning,
helping us work in the right direction when approaching the recommendation for a new business model.
The following AVV business model description is created by using inputs from the interview with AVV,
AVV’s homepage and their annual and environmental reports for 2011.
ProductPillar
Steen Madsen, AVV`s director explains the company`s business model as: “We help all citizens in our
geography take garbage away in many different ways and make certain that it gets reused and that we
use energy from the waste”. That is our job and everyone has to join.”
However, in order to define the nine building blocks of AVV’s business model it is important to begin
with a clarification of complex and specific regulations and limitations of which without the business
model logic cannot be understood.
First, AVV is owned by two municipalities Brønderslev and Hjørring, and the company’s main
responsibility is to provide service of post-collection treatment of household waste and treatment of
commercial and industrial waste within these two municipalities. AVV offers services to their
municipality owners for waste management fees that are paid by the households. Therefore,
municipalities are both owners and customers of AVV.
Municipalities set the level of fees for the acceptance of the waste. More precisely, the Company’s Board
of Directors of which members are elected among councilors from the two municipalities defines the
level of the fee (Vedtægter, 2011) and the “level of service AVV will provide” (Steen Madsen). In
“We are a non-profit organization. We are not supposed to bring big turnover and big profit. We
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cost of the service that AVV provides (Simonsen, 2006:1). More precisely, Steen Madsen explains:
37
addition, AVV’s work is based on the “cost coverage principle” meaning that the price cannot exceed the
supposed to be a service for citizens. That's how we work.”
The presence of the councilors in the Board of Directors implies that the company is subject of political
control. “Members of the Board are local politicians and they control the company”. (Steen Madsen)
The Board of Directors is AVV`s supreme governing body responsible for the overall management of the
company. We understand this fact as a potential limitation since some proposed options can have more
political than business objectives.
However, the fact that AVV is a municipality owned waste management company, it also means that the
company enjoys an exclusive right, on household waste and the treatment of the waste from commercial
and industrial sector within Brønderslev og Hjørring. This argument can be verified with Steen Madsen
statement which implies that AVV obtains what can be regarded as a monopoly because the level of
competition that AVV experiences is almost non-existent. “We have no competition. They are talking
loudly about that politically that they want to change the whole set up. But this is how it is and how it is
working.”(Steen Madsen)
We identified that the Value Proposition of AVV is to deliver waste management solutions for citizens
and businesses with minimum environmental impact. Further, AVV`s value proposition can be
decomposed into three core elementary offerings targeting different Customer Segments. First is to
provide service of management of household waste for municipalities. Second, is to provide service of
waste management for commercial and industrial enterprises. Third, is to provide service of educating
citizens, businesses, employees and partner municipalities on recycling and waste treatment
environmental impact (Vedtægter, 2011).
The first Offering is a service of management of the household waste for municipalities. The service
presents a value for the Customer Segment which we named Municipalities. By the attribute Reasoning
we should capture the assumption why this service is valuable to the customer. We identified that the
service corresponds to municipalities’ need to collect, treat and dispose household waste. Further, it
creates value through the protection of public health and the environment. In addition, it reduces the
municipality’s risk related to the obligation that these activities need to be conducted in environmentally
reasonable way since all AVV plants are environmentally certified.
management company. The price level of the service we could not place on the scale that goes from free,
economy, market and high-end as proposed by Osterwalder (2004:53). The reason is, as we already
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This means that the service is not different from the service offered by another municipality owned waste
38
Furthermore, for the service of management of household waste we identified the “me-too” value level.
mentioned, that municipalities set the price for the service, not the market. However, the main value
comes from the use of the service because the value offered matches the municipalities’ needs.
The second offering is a service of waste management for commercial and industrial enterprises. We
identified that the service corresponds to the Target Customer need to get rid of waste. In other words, the
service creates value by simply helping customers get this job done. In return, companies pay AVV an
annual fee. We also noticed that although commercial and industrial customers pay an annual fee to
deliver waste, AVV still has the right to earn money for sending the waste out of the country for further
treatment. Steen Madsen explains:
“If you have to go to recycling facilities spread all over geographically you have to pay certain amount
...but you can also go to the next city, community...and also we have some issues about that some of that
garbage going out of the country because it cost money to deliver to us. There are some issues there.”
However, we argue that the service creates value for customer for several reasons. The main value comes
from the fact that service reduces customer risk related to violations of the waste legislation. In addition,
value is created through a reduction of customer efforts. Customers efforts are reduced through the short
distance of the recycling centers from cities, long opening hours, transparent pricing, various waste
service arrangements, clear service offering, use of AVV`s websites for online booking, online
subscription for use of the recycling center, free advice and consulting related to waste management.
We identified “innovative imitation” value level of AVV’s second offering. This means that the service
presents a standard offering comparable to other municipality owned waste management companies, but
improves value by adding innovation elements such as free advice and consulting to companies. Price
level for service is described as “market” and means price close to average in the market. The service
creates value at the moment of purchasing and use of the service. In the stage of purchase, value is created
through possibility for online booking, online subscription and choosing between different waste
arrangements via AVV’s website. These features of service significantly improve customers buying
experience.
The third offering is the service of educating citizens, businesses, employees and partner municipalities
on recycling, waste treatment and environmental implications of these processes. Steen Madsen state:
understand how things are connected in nature and you need to get responsibility yourself.”
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visits and educate about the environment, try to target young people. We think it is important to
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“Educational part is an important issue. We like to educate and we find money to do that. We organized
The service creates value for society through building awareness of the environmental importance of
waste management treatment. In addition, through different campaigns and organized visits to the AVV’s
facilities, households and businesses are invited to co-create value by changing the behavior and
implementing new knowledge. The company offers this service without financial compensation. We
identified value level as “me-too” since other municipally owned waste management companies in
Denmark also offer this service.
CustomerInterfacePillar
AVV’s value proposition reveals that the company distinguishes between a large Target customer group
consisting of households of Brønderslev og Hjørring, and a smaller group of commercial and industrial
business customers. Both segments have similar but varying needs and problems. This has further
implications on the choice of Distribution Channels and Customer Relations. Therefore, in order to
deliver a value proposition or offerings to the customers, AVV uses a mix of sales, distribution and
communication Channels.
The most important Channel is the waste treatment facilities where delivery of service takes place. The
channel fulfills also the function of creating customer awareness by allowing customers to evaluate
AVV`s “green” value proposition and after sales function by supporting customers at the site. The
treatment facilities also, contribute to value creation since customers have access to the personal
assistance that reduces customer efforts (Miljøredegørelse, 2011). The second hand shop is a direct sales
channel which sales things that individuals have delivered for recycling such as clothes, books, furniture
and tableware. This channel covers the purchase phase of the customer buying cycle but also creates
awareness about the company’s existence. In addition, AVV`s "products" are: electricity and heat, which
the company produces by burning waste and sorted materials for the recycling industry. This means that
the company needs to find a way to sell waste treatment outputs as inputs for new products. Therefore,
AVV’s sales personal represents an important Channel. This channel covers purchase phase and
evaluation phase by providing detailed information about the company, product and the service offers.
For example, in order to ensure a market for their products AVV entered in a heating agreement with
Hjørring Varmeforsyning (Agenda for the meeting on 28 of May 2013, www.avv.dk). Also, AVV offers a
free consulting service that creates a direct communication link between the company, individuals and
enterprises and covers the after sale phase of a customer buying cycle. We argue that this service creates
In order to deliver waste collection and waste transport service, AVV uses its own vehicles or enters in
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knowledge sharing and help in case of problems.
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value for the company by creating loyal customers and also it creates value for the customers through
agreements with transportation partners. The Channel adds value to the Value Proposition because the
choice of vehicles and transport service providers are made after considering key environmental impacts
such as energy, emission and noise.
In the case of AVV we identified the Internet as a significant Communication Channel. The channel can
be further decomposed to links: AVV’s corporate website, Blog, Facebook page and YouTube channel.
The company’s corporate website is a place for online waste collection booking and online subscription
for the use of the recycling center, but it is also a source for product and service information. Corporate
site creates value through the use, reduction of risk and reduction of efforts and can be integrated in the
company`s value proposition. By providing a variety of service related information, the corporate website
adds value by reducing customer’s risk of subscribing to the service that does not correspond to their
needs. However, we recognized that the most important impact of the corporate site on value creation is
through the reduction of customer efforts. The company website has reduced customer efforts through
online available waste guides, timetables for waste collection and waste sorting guides. It is also
important to notice that the corporate website represents a link for communication between AVV and
households as users of service, which has traditionally been seen as passive receivers of this kind of
offering. In addition, this link creates value for the company by selling them additional products and
receiving feedback information that AVV uses for improving its services.
This channel covers three phases of the customer buying cycle awareness and evaluation and purchase.
For example, an AVV’s website creates customer awareness through waste treatment facility locator and
advertising of new service and products. Evaluation phase is covered because the corporate website offers
information on the organization, the value proposition and available products, services and the price list.
In addition, the company provides the possibility for finding more objective information for evaluation of
AVV’s value proposition by offering links to different consumer groups on Facebook page and
nulskrald.dk page. Furthermore, AVV uses social media, TV and print media and AVV events and
experiments such as Nulskrald, Graffiti projects and different workshops to create awareness about the
company but also to raise awareness about environmental issues. Steen Madsen noticed:
“Facebook is unique in the business. That is something that you would not believe that a company like
ours would do that.”
The fourth building block of AVV`s business model is the Relationship element. We identified strong
Hjørring municipalities. The company uses a different mechanism for establishing personal relationships.
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First mechanism is personal assistance that the company provides at the different waste treatment
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Personal Relationships AVV has established with individuals and enterprises within the Brønderslev og
facilities. This mechanism creates value by lowering customer’s risk and efforts during the delivery and
sorting of the waste at the sites. In addition, it helps building trust through communication and
information sharing and helps customer retention.
A second mechanism for building personal relationship with the customers is the support provided by the
AVV service department that offers assistance via telephone, therefore helping to build a relationship of
trust with the company. Third mechanism is AVV waste management consulting service design to
provide solutions for specific customer needs and behaviors (www.avv.dk). These mechanisms enhance
retention of customers. In addition, mechanisms support building customer trust through communication
and information sharing.
In addition, AVV establishes relationships that are not based on human interaction. This means selfservices offered via AVV`s website as a relationship mechanism. Examples of services are online
booking and online subscription for use of recycling center. This mechanism enhances acquisition and
retention of customers and creates value through use of the website. AVV also offers newsletter
subscription for citizens and businesses. The company sends specific information such as AVV`s news
and events, updates about waste treatment facilities, new rules and regulations and special deals in second
hand shop. This mechanism enhances customer retention, building of trust and add-on-selling.
Furthermore, to facilitate customers’ relationships AVV utilizes user communities. Examples are
company’s Facebook page, Nulskrald ( Zero Waste) Facebook page, AVV`s blog and second hand shop
page. Through this mechanisms company becomes involved with customers but also facilitates the
connection between the community members. This is seen especially important during the project
“Nulskrald” (Zero Waste) where the Community of zero waste families had a virtual meeting place in
Nulskrald (Zero Waste) Facebook page. Families had the possibility to solve each other’s problems and
share knowledge related to waste sorting. In return, company increases the understanding of the problems
faced by the family members related to waste. A user community as Relation mechanism also builds
customer trust because the company cannot control information about the user’s experience. In addition,
we saw this mechanism as a powerful way to encourage families to post pictures and brand related
content on Facebook and used them for building trust and green branding.
AVV is environmentally certified and certified according to ISO 14001, EMAS and OHSAS 18001
addition, the certification of AVV`s working environment also builds employees' trust and positively
affects employee attraction and retention.
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certification represents the guarantee that all waste is treated in an environmentally correct way. In
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standards. This means that the company uses certification as a mechanism to build customer trust. The
InfrastructureManagementPillar
The first block under the ‘Infrastructure Management’ pillar is ‘Capabilities’ which represents the ability
of AVV to use and combine its resources in order to create value for their customers. This section will
explicitly represent AVV’s capabilities in treating and managing waste. To keep the focus of this project,
only the key resources and capabilities AVV employs will be analysed.
Sommer (2010) attributes the dimension of tangible, intangible and human to the resources of a firm. It is
plain that the primary resource AVV employs is a tangible resource - waste. As only the municipal waste
treatment companies are allowed to manage the household waste, for the private sector this represents a
types of resource that cannot be obtained. Other tangible resources of AVV are collecting trucks, bins and
waste bubbles, incineration plant, recycling centres and sites, offices and the resources can continue with
all tangible assets.
The authors believe that a form of an intangible resource for AVV is the state ownership mechanism
through which the exclusive rights to build, own and use the incinerators are granted to the municipal
waste companies. For many decades the incinerators represented a resource for the public waste
management companies. By incinerating waste AVV can generate heat and electricity which is then sold
to the municipal heating company. The heat generated by the incineration is also directed for internal use
(AVV Annual Report 2011). The capability to incinerate waste can be performed only by the municipal
waste treatment companies. It is important to notice that not only these waste treatment companies have
invested in the incinerators and by burning the waste and selling it they are recovering their investment
back but also by liberating the market a knowledge migration can happen where employees from the
public companies leave the firms for getting employed in the private sector. Employee therefore represent
the human resource of AVV, owners of waste treatment and management knowledge which can be
leveraged by other companies, if the competition will shift and this effect of knowledge migration takes
place. Therefore, knowledge represents a key resource for AVV. AVV’s knowledge on waste
management has been increasing in all its years of existence and its reputation as a waste management
knowledge repository is undeniable. The activity where AVV is knowledge-intensive is the consulting
services it offers to businesses in relation to waste generation, reuse and disposal.
The recycling service shows that AVV has the knowledge to sort according to the types of waste (AVV
Annual Report 2011), ship the sorted waste to the collaborating national and international partners that
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citizens to sort their waste. Refer to Annex Nr. 1, page 59 for a picture of AVV’s sorting bins.
43
recycle the sorted waste and also having the capability to create such an infrastructure that would allow
Therefore, it can be concluded that the key capabilities of AVV to incinerate, recycle and consult together
with key resources such as waste, ownership rights and knowledge (employees) makes AVV a waste
treatment repository that give the company a strategic advantage on the market. The authors recommend
that these capabilities be continuously improved as the potential liberalization of the market can rapidly
render them obsolete.
The theoretical chapter of the project also described the ‘Value Configuration’ block as how the firm
arranges its activities to support the creation of value. Firm’s activities are related to the value chain
management according to Osterwalder (2004) which in the context of a tightening waste regulatory
system, a step towards an eco-value chain is recommended – an eco-value chain otherwise called a
sustainable value chain represents minimizing the environmental footprint of each of value chain activity.
The analysis of value chains has to be addressed to a particular stakeholder in such a matter that the
analysis will reveal the relevant information about the value creation and ways to continuously adapt and
improve it. Therefore, the value chain analysis is a diagnostic tool which in many cases also acts as a
catalyst for change.
It is important to specify the difference of employing the value chain from the supply chain analysis. The
reason stands in the consumer and its degree of participation in the firm’s offering. Therefore, it is about
companies delivering products with high value added as a result of a demand pull and not as a result of a
market push. It is often the case when the market push encounters bottlenecks which results in
inefficiencies, wasted resources and high amounts of products’ waste. A sustainable value chain adds to
all three elements (material flow, information flow and relationships) an environmental dimension – what
environmental impact can be seen at each link in the chain and how can it be improved. Due to data
collection limitations of this project, the environmental dimension will be added only by relating it to the
technological trends in the sector of waste management, meaning that suggestions of potential
improvements of each chain link will be done based on the waste technologies.
For the simplicity of analysis and because the focus of this project is not an in-depth analysis of the value
chain, Porter’s (1985) framework will be used for two key services AVV provides:
incineration1;

recycling2.
1
2
Please refer to Annex Nr. 2, page 61, for a graphical representation of the incineration activity flow.
Please refer to Annex Nr. 3, page 61, for a graphical representation of the recycling activity flow.
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
The authors of this project are aware of the fact that the business model of a company describes the core
logic of the business for each service/product provided, however in AVV’s case and in this section the
support activities from the value chain analysis (blue colored blocks) are maintained the same for both
services; only the primary activities were assessed depending on the service specificity. The pure
coincidence of analysing these supply chains as having the support activities the same for all services and
specialized primary activities per service has rendered the question whether it is exactly the same
conformation that doesn’t allow AVV to have a profitable business out of recycling. According to AVV’s
annual report from 2011, the recycling activity’s situation has closed with a negative balance, just like in
2010. Or as Steen Madsen, AVV’s director, argued for this activity “to get a good turnover you need to
have a city the size of Hamburg.” The authors of the project suspect that the recycling activity has proven
economically inefficient because it shares the same business model as the incineration activity; however
this investigation is not the scope of the project.
The following graph represents the value chain management tool as designed by Porter (1985) for the
incineration service provided by AVV.
Figure 11 Value Chain Analysis for Incineration
The sustainability aspect of the supply chain analysis regards all primary activities and their impact on the
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environment. As it can be seen from the waste flow pictured in Annex Nr. 2, page 60, the ‘Inbound
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Source: Own
Logistics’ operation of AVV represents a source of CO2 emission through the operation of waste trucks
operable on non-sustainable source of energy (e.g. fuel). The ‘Operations’ block definitely can support
technological upgrades of the incineration plants to reduce the level of CO2 and other heavy metals
released from incineration.
Next is illustrated the value chain analysis of the recycling activity in AVV.
Figure 12 Value Chain Analysis of Recycling
Source: Own
In the end, it is of great importance to mention that although the company has to render positive economic
results, the decision between incinerating and recycling the waste is not purely financial as AVV’s
Director argues in the interview. It is also an environmental decision. Burning plastic increases the
emission if CO2, percentage also regulated by the legislation, therefore in order to be in accordance with
the legislation, burning is not always the primary choice when it comes to waste. Alternative options are
taken into consideration, such as packing in bulk the sorted waste and send them to recycling plants either
from Denmark either from other countries (e.g Germany, China, and Japan – as argued in the interview by
AVV Director). The decision to ship the sorted waste depends on the quality of the plastic, color, caloric
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waste. The more sorted waste the more recycled waste. The option of investing in a sorting plant by AVV
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power, quantity and costs for delivering. Here it realizes the importance of educating customers to sort
is unattainable as the quantity of waste does not render to the capacity of sorting for such a plant. At least
this is AVV Director’s opinion.
The third block of the third pillar is Partnerships. As a state-owned company with complete control over
the waste management of two municipalities, AVV has partnerships of great importance, among which
some are comprised by:

waste collecting truck companies;

public and private recycling waste plants (national and international)

the municipalities (e.g. heating district);

Aalborg University;

experts with special responsibilities (e.g. plant builders, sites construction).
As mentioned in the theoretical chapter, partnerships are an essential part of the business model,
according to some scholars even a resource, that can help the company create value for customers in other
ways. At the question “Where do you see innovation coming from, that can potentially impact your
business model?” from the interview, AVV’s director shortly answered “Networks”. Although the value
of partnership is recognized in AVV, it is not yet implement at its full degree as it can be easily noticed
that AVV’s cooperation with the private sector is limited. However, the environment is changing fast and
the authorities are keen on implicating the private sector in the waste management system as AVV’s
director is arguing in the interview “They [politicians] want to change the whole setup.” However, the
director of AVV senses that this will be a great opportunity to expand their business and to create more
partnerships “like a consortium of companies” (ibidem) as already has been done with “several institutes
from AAU, a formal think-tank”.
FinancialAspectsPillar
Before proceeding to the two building blocks of the ‘Financial Aspects’ pillar, it is important to
acknowledge that AVV is a state-owned company, “a municipality on our own” as the director Steen
argues. AVV acts more or less like a not-for-profit organization meaning that in a very short period of
time any surplus of income should be balanced (Simonsen, 2006). Although surplus is not a driving cost
for existence, a positive balance of the activities represents an important matter for future investments.
In the ‘Revenue Stream’ block, Osterwalder (2004) mentions few pricing mechanisms for the revenue
framed into the same pricing mechanisms as the private sector. Therefore, AVV may fall under the ‘fixed
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price’ category for the services of selling the heat/energy to the heating district but there is a distinct
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stream; however they are clearly directed towards the private sector as public companies cannot be
pricing mechanism from the ones mentioned by Osterwalder (2004) for other services of AVV like
incineration and recycling. The key activities under observation in this project (incineration and
recycling) regard the distinct mechanism of indirect pricing through taxes. All citizens of the two
municipalities indirectly, from their income, pay the price for AVV’s services of waste management.
There is, however, a clear distinction whether the waste is selected or not, as the municipalities
incentivize citizens to sort the waste by decreasing their taxes. In this way, citizens that do not sort waste
are not penalized but those who sort are incentivized, as it was noted from the interview. This means that
AVV revenue is influenced through and by state taxes.
However, the other stream of revenue regards the heating district which buys heat/electricity from AVV
in exchange of a state-set and ceiled price. Both companies, AVV and the heating district act as a nonprofit organization, therefore their financial bottom line shouldn’t show neither surplus nor minus. As the
waste-to-energy facilities must act like a non-profit organization, a gate fee must cover the expenses that
cannot be covered by revenues from the sale of electricity/heat (Simonsen, 2006). A short explanation of
the ‘gate fee’ meaning is provided in the next quote.
“Typically, the costs of incineration amount to € 100/ton of waste (excluding taxes), while the earnings
from sale of heat and electricity amount to € 70/ton, corresponding to a gate fee of € 30/ton. The Danish
gate fees are the lowest in Europe, where gate fees of more than € 200/ton may be found.” (Simonsen,
2006)
The price ceiling depends on the type of ‘fuel’ the incinerator uses; therefore plants burning waste are
incentivized by higher price ceilings (data from 2006):

ranging from 62 DKK per GJ for plants located in areas served by district heating from a central,
coal-fired power plant,

over 64 DKK per GJ for plants located in areas with district heating from small-scale plants fired
with all other fuels than natural gas,

to 81 DKK per GJ in areas in which the district heating is provided by small-scale natural gasfired plants. (Graasbøll, 2006)
As for the ‘Cost Structure’ block, the situation stands just as complicated as the pricing mechanism.
Especially in a highly regulated environment, classifying costs can be troublesome; however in this
AVV comes from incineration; however, the costs of producing heat/energy are higher (it includes the
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sum of all value supply costs, e.g. transport, inventory and deposit, incineration) because different types
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project only essential distinguishable characteristics will be analyzed. The principal revenue stream for
of waste have different caloric power, therefore weak caloric waste, like household waste, needs catalysts
for burning, like oil of all kinds and fossils, which are found to be the least sustainable form of
maintaining heat in incinerators. Therefore, the costs that cannot be covered by vending heat/electricity
must be covered by a gate fee. This kind of fee is specially designed for covering only the costs that
cannot be recovered by the earnings generated from the sale of heat/energy. It is known that public sector
companies are similar to the non-profit organizations therefore; any surplus made from selling
heat/energy should be balanced. “The Danish waste-to-energy facilities are subject to a cost coverage
principle, which means that they can show neither a profit nor a loss. Receipts and expenses must balance
within a small time span.” (Simonsen, 2006)
Regarding the use of sorting the waste, regulatory instruments are incentivizing recycling through taxes as
it can be seen further. Not incinerating or recycling but deposing waste in landfill has the highest tax. This
policy is supported by taxes on waste for incineration and landfilling, taxes on fossil fuels and electricity,
and by subsidies for electricity generated by waste incineration. The Danish state tax is differentiated
(Simonsen, 2006) as follows (data from 2006):

landfill tax (DKK 375 (€ 50)/ton)

incineration tax (DKK 330 (€ 44)/ton)

recycle waste tax (DKK 0/ton)

heat produced from waste tax € 6.20/MWh

sulphur dioxide emitted tax DKK 10 (€ 1.33)/ton

electricity subsidy of DKK 0.07 (1 Eurocent)/kWh
All the financial aspects presented above about AVV’s business model represent the key aspects of its
activities and definitely do not represent all the revenue streams and costs structure.
VI.
Fitness of AVV’s current business model
The discussion of this chapter will be upon the fact that in the business environment of AVV have been
identified opportunities and challenges that according to Johnson et al. (2008) represent a driver for
business model innovations. The authors of this project start from the assumption that since these
opportunities and challenges have been identified in the business environment of AVV, their business
The authors ought to analyze the waste sector liberalization, for opportunities and challenges that might
49
act as a driver for business model change. Therefore, the regulatory environment regards not only the
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model has to change in order to maintain their market position given the changing external environment.
Danish legislation but also its alignment with the EU waste policies and OECD environmental policies.
One of the goals for OECD environmental policies is to decouple environment impact from economic
growth as it has been demonstrated that whenever there is economic growth there is also a higher
environmental impact (OECD, 2013). By reflecting on announced beginning of the liberalization of
Danish waste sector Torben Nøhr, Technical and Environmental Director of Køge Municipality, argues
that increased competition in the area of waste management will lead to lower prices for all households
and businesses in Denmark. (Affald og ressourcer, 2013). However, it can be considered that the Danish
waste sector liberalization decision results in a ‘shift of the competition’ that would be a driver for
business model change for AVV. In the interview, AVV’s director, Steen declared that AVV sees this
liberalization as an opportunity to grow and to manage more waste. However, the authors of the project
believe that a shift in the base of competition, as a result of the market liberalization can lead to increased
competition from new entrants that bring new competencies, new knowledge and new technologies. All
these changes represent a threat for the AVV market position as their knowledge and competences might
render obsolete due to organizational inertia or managerial cognition. Furthermore, the authors have
identified internal barriers to the adoption of eco-business model innovation as mentioned in the
theoretical chapter. Steen Madsen argued that AVV does not foresee any changes to the business model,
even more he has addressed the concern of the high investment needed for the adoption of new green
technologies. From the technological trends there are opportunities or challenges coming from the
greening technologies that can allow new entrants to have better results in waste treatment with less
environmental impact than the incumbent companies, given the increased focus of the waste policies on
advanced technologic usage. Therefore, a driver for business model innovation is represented by the
emergence of greener technologies, which can be framed under Johson’s et al. (2008) ‘capitalization on a
brand new technology’. It has been noticed that AVV’s director, Steen Madsen, is not the only one who
does not focus on adopting greener technologies as in the Danish waste management sector there are also
other specialists who doubt the effects of the market liberalization or even the event itself from happening
(Affald og ressourcer, 2013). A reasoning for this mistrust and barrier towards adopting newer and
greener technologies, might be that of municipality companies trying to offset their investment in the
incinerators – no competition on the market can mean to some, no new technologies to be adopted (no
new investments).
Therefore, in an environment with a shift base of competition, the building blocks directly affected from
the value proposition and customer segments – having less waste to manage, some activities may render
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households and businesses has to be divided among a growing competition, leading further to changes to
50
the business model are: the key resources and key activities as the quantity of waste generated by the
obsolete and therefore will not be provided losing customer segments. The underlying building blocks,
the cost structure and revenue streams will also have to change.
The continuous alignment between Danish waste policy and EU waste policy strengthens the focus of
waste reduction and prevention, or how the Danish Minister of Environment, Ida Auken, puts it “a shift
in paradigm.” The waste hierarchy as it is described in the EU waste framework directive focuses more
on ‘waste prevention’ and ‘reusing’ activities rather than ‘disposal’, ‘recovery’ and ‘recycling’ as it the
current described. The efforts to be aligned with the EU waste legislation has put pressure on the waste
treatment companies through the Danish waste legislation to incinerate less, recycle more and engage
more in waste prevention. This has been seen by AVV as an opportunity to launch the Zero-Waste
campaign, which educates citizens about sorting, recycling and preventing waste. The success of the
Zero-Waste action can render a new type of customers for AVV: customers that have a demand for not
only safely disposing of the waste but also that of reusing and preventing. This new segment of customers
can be translated into a business model innovation. This covers the ‘job-to-be-done’ focus described in
the synthesis of Johnson et al. (2008). This is also another opportunity for AVV to engage in business
model innovation. Tue Jepsen, staff of AVV, also argued “we feel that the current Nulskrald [ZeroWaste] project has been about recycling and sorting, i.e. treating the symptoms instead of the problem, so
prevention – or rather consuming the “better” products – would be an obvious approach next time.”
As these changes have been identified in AVV’s business environment, managers of AVV can take into
consideration making changes to the current business in accordance to the analyzed changes from their
environment. The most important contribution of this section is related to reconsidering AVV’s current
business model and recommending business model innovations by looking at the issues of the waste
sector transformations, as a source of potential improvement.
VII.
Potential eco-business model innovations (Recommendations)
This chapter represents the analysis of two eco-business model innovations drivers that can be seen as a
result of the AVV’s business environment analysis in the section above: the Zero-Waste campaign and
green technologies.
1. TheZero‐WasteCampaignasbusinessmodelinnovationdriver
are above expectations.
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educate citizens about sorting, recycling and reusing and waste prevention. The results of the campaign
51
In this section it will be demonstrated the potential of the Zero-Waste campaign started off by AVV to
As mentioned in the theoretical background of this project, innovative business models can enable firms
to restructure their value chains and generate new types of producer-consumer relationships. Therefore,
companies can, by replacing old business practices, alter the consumption culture and patterns of use of
their customers. Understanding how policy and technology can influence and facilitate the emergence of
new business models that are effective in driving eco-innovation is very important as the previous section
demonstrated.
In this project however it is demonstrated that the “Zero-Waste” campaign although named a CSR
activity by AVV, can acts as business model innovation driver to provide in the long run, user-driven
innovations that can give AVV access to a new, flexible business models that would strengthen their
position on the market regardless of its structure. Zero-Waste campaign represents the link between
AVV’s value chain and their customers. By the implication of their customers into the value chain, AVV
can assure that each activity of the value chain is user-driven and tailored to produce services that fit their
customers’ demand – a demand pull.
The Zero-Waste campaign has proven to be so successful that citizens/customers have asked for the
continuation of the campaign and their involvement exceeds AVV’s expectations. Tue Jepsen from AVV
said “one of the things we are discussing is a Nulskrald [Zero-Waste] phase 2, where we take a whole
city and do the same experiment but more thoroughly – like working with the local supermarkets to
prevent unnecessary packaging and food waste”. From this, it can be noted that there is a demand for
citizen’s involvement in efficientizing the disposal of household waste through separation and suitable
disposal. It can easily be understood that such demands require a change in the current infrastructure of
AVV where it should accommodate the waste sorting and also to extend the services of collecting
separated waste.
However, Zero-Waste is not regarded as an activity with immediate impact but according to Liina’s
(2012) eco-projections, Zero-Waste could be an action that doesn’t have immediate economic
performance but can become a potential eco-innovation. From the interview and questionnaire with the
AVV personnel it could have been observed that the interest of Zero-Waste campaign was not only for
brand-imaging (a CSR campaign) but foreseen uses of the received feedback and results are taken into
consideration – with the help of two PhD students from AAU which will examine the results of the
campaign more thoroughly. The authors of this report consider however that the managers of AVV should
services/products that would lead to the satisfaction of their customer’s need. The authors believe that
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customer’s demand and assess whether the current business model can support the production of new
52
consider using the campaign’s results also for changing their business model by first understanding the
AVV managers use the results of the campaign only to a partial extent as AVV director mentioned that
“we do not foresee any business model changes”.
However, the Zero-Waste campaign acts as a driver for business model innovation which as mentioned
before has the opportunity to create a new customer segment for AVV which addresses a new type of
service: collection of sorted waste from the households providing special bins for sorting and a separate
schedule for collection than the usual waste collection. Such a service changes the value proposition block
of AVV’s business model, also adding a new customer segment with new key activities. The revenue and
cost structure will change accordingly as purchasing new bins for sorting and attaching them to the
collecting trucks might require different transactions than the usual.
Therefore, we recommend to AVV to better assess the importance of the consumer’s needs through the
received results of the “Zero-Waste” campaign. A campaign, even if considered a simple CSR activity,
that has such a big impact on consumer shows a demand pull which if tapped before other
companies/municipalities, can provide the secure sustainable advantage on the market. AVV gains
knowledge and customer insight from listening to its customers and citizens are satisfied of their societal
implication.
2. GreenTechnologiesasaneco‐businessmodelinnovationdriver
The advancing trend of waste technologies and green technologies represent a potential eco-business
model innovation for AVV. As seen in the value chain analysis, the collection of the waste from
households and business is done through non-sustainable sources of energy. As green technologies
become readily available, supplied by a tightening regulatory environment in the direction of using low
environmental impact technologies, improving the environmental footprint of each block of the value
chain has a great importance for the company to sustain its market position. Green technologies can be
adopted at each block of the supply chain starting with the collecting sites, collecting truck and ending
with the delivery of heat/electricity to the heating district or the delivery of the sorted waste to the
recycling plants.
The adoption of such technologies is one option. Researching and developing these green technologies is
another. With the waste treatment knowledge and capabilities, AVV can partner with private sector
companies to develop such kind of technologies. The types of partnerships and which partners are suitable
implementation would decrease the environmental impact. The open innovation concept can have its
application in sources such as crowdsourcing. In a sense, the Zero-Waste campaign acts as well as a
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campaigns where interested investors or experts can develop certain technologies of which
53
for AVV are not analysed in this project. AVV can employ the use of open innovation and create
crowdsourcing activity if the end goal of the campaign is set accordingly and the results rendered help
AVV to develop more efficient services and products; Zero-Waste should not be considered, as
previously mentioned just a mere CSR campaign by AVV managers.
VIII.
Conclusions
The objective of this project is to understand AVV’s current business model and to propose eco-business
model innovations in order to align AVV’s business logic to the changing waste sector. It is generally
known that a company has to adapt in order to survive in a changing environment; however this project
specifically tackles the issues of business model innovation as an efficient response to a tightening
regulatory system and continuous technology advancement in the Danish Waste sector.
Companies, both private and public, must, before making any changes to their activities, assess their own
current business model to have a clear view of the business’s elements and their relations. When this
systematic view is understood, changes to the business model must be done with special attention as any
mismatch between the model’s elements can lead to inefficient structures. The importance of assessing
the fitness of the business model come as an important step before proceeding to business model
innovations as a changing environment is not necessarily a sufficient condition for model changes. The
assessment of AVV’s business model fitness showed that in an environment with a shifting base of the
competition, a customer demand for waste recycling and a need for green technologies requires an ecobusiness model innovation. However, successful business model innovations for AVV cannot only be
based on functionality and design but along with the customers’ environmental awareness and green
technological advancements, AVV must turn their direction towards eco-business model innovations or
green business model innovations. An eco-business model innovation not only requires the change to be
successful but also to add value to the consumer and to decrease or neutralize its environmental footprint.
In a waste sector with a rising importance of reducing the environmental impact, business model
innovations are not sufficient to survive in a dynamic business environment but AVV should go a step
further to adopting eco-business model innovations. In addition, the beginning of the waste market
liberalization will threaten the municipal-owned waste management companies such as AVV with
increased competition that can bring new resources and competences into the market, rendering obsolete
the ones of the incumbent firms.
transformations, as a source of potential improvement. The Zero-Waste campaign provides AVV with the
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model and recommending eco-business model innovation by looking at the issues of the waste sector
54
The main results and the most important contribution is related to reconsidering AVV’s current business
opportunity to offer a new service to satisfy the needs of the identified new customer segment. If our
recommendations will be applied the new service will represent an opportunity for AVV business model
innovation. In addition we want to provide AVV managers with the insight about the importance to
reconsider investing in new greening technologies. This is seen as an important source for eco-business
model innovation. These are some of the possibilities how AVV can change the business model to be
better suited for a changing environment.
IX.
Limitations and Further Research
1. Limitations
The conceptual limitations of this project stand in the choice of theories employed in the theoretical
framework to guideline the development of the empirical chapters. However, the choice of the theories
was done to be best knowledge of the authors and they are well aware of the existence of alternative
theories that could have been employed.
Data collection limitations stand in coordination difficulties with the AVV staff as the communication
could have happened only during their work time which led to schedule mismatches and limited time for
cooperation. A more through cooperation might have positively impacted our result in regards of
quantitative and qualitative data. The authors tried to be as objective as possible in regards to the
collection and interpretation of the data, but the usage of a qualitative research tool such as the interview
exposes the researchers to big challenges such as not becoming biased during the data dissemination.
However, we have worked together and we challenged each other’s perceptions about the case study data
at the best of our knowledge.
Project design limitations stand in the choice of using a single study case for researching. An alternative
to the single study case would have been the multiple cases study. Although the multiple case studies can
be more persuasive and by using comparisons an analysis between municipal waste companies could have
rendered more general applicable findings, the single case study enables an in-depth insight into the
municipal waste companies’ business logic.
2. FurtherResearch
have employed alternative theories for the business model assessment and the business environment of
the AVV could have been supported by a quantitative research method based on direct observations.
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the municipal waste companies from Denmark. The authors of this report believe that the analysis could
55
The authors of this project addresses the further research section to any reader that would want to research
X.
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XI.
Annexes
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AnnexNr.1
AnnexNr.2
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AnnexNr.3