In Vino Veritas

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Prof. Adrian Zicari

For a person, sure. But this adage is now also applicable to sustainability and a key driver in creating value for small and medium enterprises operating in the Italian wine industry. Profs Adrian Zicari of ESSEC Business School, and Laura Broccardo of Università di Torino, Turin share their research.

By CoBS Editor Guragam Singh from the paper Sustainability as a driver for value creation: A business model analysis of small and medium enterprises in the Italian wine sector by Laura Broccardo and Adrian Zicari, Elsevier.

Abuzz with words

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Of buzz and business

Sustainability is the buzzword of today. As such, firms from fast-food chains to haute couture houses to international bodies such as the United Nations—with tomorrow’s interests in mind—have been unable to shake off this hangover. However, certain organisations, more so than others, definitely consider sustainability a core aspect of their business models. And leverage it to obtain economic value and competitive advantage.

But what constitutes a business model is clearly not as well defined. The business model has been confused with other management jargon such as strategy and business concept. For their part, Prof Zicari and Prof Broccardo draw from a vast body of literature to align a model with various definitions and highlight how these interact with each other. As such, they follow the classical model proposed by Johnson et al. (2008)* that describes a business model as having four elements—a customer value proposition, a profit formula, key resources, and key processes.

This approach allows business models to be tweaked to changing realities—thereby sparking innovation— especially to address those needs arising from potential customers and competitors. In addition, theory supports the view that business models shape the external environment of which they are a part. This flux provides an opportunity to the business model to purposefully engage in social and environmental considerations—and as a result, to the organisation’s multiple stakeholders—in addition to simply economic ones.

Wine for thought

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Of wrath the grapes not

To this end, business models have recently become addicted to sustainability in addition to the lure of profits. As such, theory posits that a firm with a sustainability-centric business model will address economic, social, and environmental concerns in a uniform way—creating superior customer value and contributing to society.

In order to better understand these business models, Prof Zicari and his fellow researcher offer samplings of the Italian wine industry. Close to 800 small- and medium-sized enterprises (SMEs) were shortlisted to obtain data through questionnaires of which 106 firms—representative of the sample—were further studied. It allowed for a better understanding not only of the firms’ structure, profitability, and ownership but also of elements of their business models.

The findings proved to be interesting. A basic analysis of these firms, over a period of three years, showed positive profitability indicators, yet their financial situation was leveraged indicating long term financial risk.

Sustainability runs in the blood

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Wine and wisdom

The corporate governance of the firms also added a layer of complexity to the results. As such, for other financial aspects being the same, family businesses showed more profitability as compared to non-family businesses. Further, the study showed that for family and non-family firms alike, customer value proposition was a core component. However, there was a major difference. Family businesses catered to foreign demand, while the others did not. Second, and perhaps more important, was the higher importance that family firms played in investing in sustainable projects to boost customer value.

Another major distinguishing factor was how the two kinds of firms viewed sustainability. As such, non-family firms favoured economic factors—reduced energy consumption, for example. By contrast, family businesses focused on the production process—organic farming, reducing waste, and improving productivity. They also consider social aspects such as employee benefits and product quality under the aegis of sustainability.

Moreover, innovation as a key process of the business model was considered by both types of companies. And innovate to sustain was a key theme. This took the form of laying stress on direct go-green initiatives such as reducing crop protection products.

Loyalty will be rewarded

As such, the different types of firms can innovate their own different business models to harvest the best possible fruit. Family firms—which also undertake viticulture—benefit from additional revenues from winery tours. This, augmented with a continuous customer-centric approach.

Subsequently, family firms engaged in rewarding loyalty and undertaking sustainable actions, have better economic performance. Even without seeking to reduce costs.

Fermenting the future

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Sustainability makes a better brew

Given that the customers for both family and non-family are hospitality businesses and not end consumers, there is a strong demand for high quality products. As such, winegrowers and sellers who consider their product medium-quality should take this opportunity to invest in a more premium offering. And include sustainability as part of the package.

What’s more, though sustainability is a key part of a business model ’s innovation, there is still a notion of it being related only to the environment without considering the economic and social points of view. For firms have followed strategies that are add-ons and, to this end, they may do well to adopt a proactive approach that entails a complete overhaul of their business model focused around sustainability.

Innovation need not be exclusively a high technology game. Rather a novel business model can change how the company operates in the market by addressing untapped needs, such as addressing end consumers directly and thereby avoiding costly intermediaries.

Bottling all these complex notes together is a task requiring special attention to processes and management control. Without letting it intoxicate you that you forget: Sustainability is everything—and not just in viticulture.

* Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008). Reinventing your business model. Harvard business review, 86(12), 57-68.

Related article: Sustainability and certified organic farming in Brazil

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Editor’s note: Our thoughts and moral support for those wine growers throughout the world currently under pressure from the Covid crisis. Innovation, courage and help is called for, and rest assured – good wine will still provide the world with thought and magic. Something we need in these present times and beyond.

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