Journal of Cleaner Production 102 (2015) 226e236

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Collaboration mechanisms for business models in distributed energy

ecosystems
€ m a, *, Anastasia Tsvetkova a, b, Magnus Gustafsson a, b, Kim Wikstro
Magnus Hellstro € m a, b
a
Åbo Akademi University, Turku, Finland
b
PBI e Research Institute for Project-Based Industry, Turku, Finland

a r t i c l e i n f o a b s t r a c t

Article history: To succeed business around renewables and sustainability often need new types of business models.
Received 4 August 2014 Business models are typically considered from the viewpoint of a focal firm, whereas renewables and
Received in revised form sustainability often require a broader, system perspective. We explore how firms together in the energy
14 March 2015
business ecosystems develop their business models to facilitate change in the logic of the industry.
Accepted 28 April 2015
Available online 9 May 2015
Earlier studies on ecosystems have looked at the role of technical interdependencies in ecosystems,
whereas we use a business model lens to study collaboration between companies. We use three cases
from the distributed energy ecosystems to illustrate how different kinds of mechanisms trigger closer
Keywords:
Business model
collaboration, sustainability and increased overall value creation. Our findings pinpoint the importance of
Collaboration identifying the factors driving the business models of the collaborating firms to facilitate system tran-
Business ecosystem sitions and change in the logic of an industry.
Renewables © 2015 Elsevier Ltd. All rights reserved.
Distributed energy systems
Sustainability

1. Introduction A central aspect of business models is indeed the notion of

Distributed energy systems rely on a different logic compared to
large-scale, centralised power plants, and fuel production units
(Johansson et al., 2005; Magnusson et al., 2005; Mirata et al., 2005).
The logic cannot rely on the same premises as in the traditional
energy sector, for instance when it comes to power equipment
manufacturing (Magnusson et al., 2005), but also in general
creating specific logics of distributed economies (Johansson et al.,
2005; Mirata et al., 2005). This implies a need for considering the
underpinning business models. It has been argued that distributed
energy systems, like sustainable or renewable energy at large,
require new and differing types of business models, often putting
the entrepreneur at a centre stage (see e.g. Johnson and Suskewicz,
2009; Loock, 2012; Okkonen and Suhonen, 2010; Provance et al.,
2011). However, few business models have become established in
the field, but new ones are continuously being developed and
tested (see e.g. Okkonen and Suhonen, 2010; Provance et al., 2011).
For example, in the biogas business one recurring question has
been the one between centralised and farm scale plants (Raven and
Geels, 2010).
* Corresponding author. Industriell ekonomi, Åbo Akademi University, Bis-
kopsgatan 8, 20500 Åbo, Finland.
€m).
E-mail address: mhellstr@abo.fi (M. Hellstro
change or transformation (Demil and Lecocq, 2010). The idea is to
improve performance by choosing a new business model that does
things better (Casadesus-Masanell and Ricart, 2010; Magretta,
2002), a phenomenon studied under the label of business model
innovation (Amit and Zott, 2012; Bock et al., 2012; Desyllas and
Sako, 2013). An emerging stream of research suggest that busi-
ness models not only transform businesses, but may in fact be
vehicles for transforming entire sectors by integrating discon-
nected parties or by inducing system changes (Brusoni et al., 2009;
Johnson and Suskewicz, 2009). Industry transformation and system
changes tend to require the joint efforts of several companies or the
change of more than one company's business model. Still, most
studies on business models revolve either around the performance
implications for a single firm (e.g. Patzelt et al., 2008; Zott and Amit,
2007; 2008) or around dyadic constellations like that between a
supplier and its customer(s) (e.g. Bjo€rkdahl, 2009; Chesbrough and
Rosenbloom, 2002). Moreover, even if business model design is to
describe the design of boundary-spanning transactions (Zott and
Amit, 2007), very few researchers have focused on explaining
what actually connects two (or more) business models with one
another. Provance et al. (2011) pinpoint this fact by examining
different institutional influences the choice of business model in
the microgenerated energy industry. They argue that such external
factors may have a larger impact on the choice of business model

http://dx.doi.org/10.1016/j.jclepro.2015.04.128
0959-6526/© 2015 Elsevier Ltd. All rights reserved.
 €m et al. / Journal of Cleaner Production 102 (2015) 226e236
M. Hellstro
than factors internal to the firm. Recent developments in the
business model literature also support this argument by arguing
that the concept indeed holds the promise of describing the net-
worked nature of value creation (Zott and Amit, 2009) and systems
of interdependent activities spanning a firm's boundaries (Zott and
Amit, 2010). The emerging literature on sustainable business
models also seems to adopt a systems view on business models
(Boons et al., 2013).
The above described problem is accentuated in business or
innovation ecosystems, which are gaining popularity in describing
collaborative and interdependent arrangements among larger sets
of companies (Adner, 2006; Gulati et al., 2012; Moore, 1993). A
similar notion of industrial ecosystems, which accentuates syner-
getic material and energy exchanges among traditionally uncon-
nected industries, is the underlying concept in the field of industrial
ecology (Chertow, 2000; Co ^te
 and Cohen-Rosenthal, 1998; Ehren-
feld, 2000). It has been claimed that the development of relatively
independent but integrated local industrial ecosystems is a key
prerequisite for creating resilient distributed systems. Industrial
ecosystems are analogous to and a sub-set of business and inno-
vation ecosystems. We argue that in both cases the interdepen-
dence asserts certain requirements on the business models of the
member companies. To be precise, we expect these business
models to be more outward bound and open (Chesbrough, 2006).
To pinpoint our interest in industry change, our focus lies on the
birth phase of ecosystems (Moore, 1993), that is, in nascent or
transforming fields (Aldrich and Fiol, 1994; Santos and Eisenhardt,
2009), where the inertia of incumbent firms meets entrepreneurial
action.
In sum, we believe that the business model is the appropriate
unit of analysis for understanding what connects businesses and
eventually triggers a system change or the formation of distributed
energy (system) business ecosystems. Hence we strive to advance
our understanding of energy business models as depictions of
firms' boundary-spanning activities (Amit and Zott, 2001; Zott and
Amit, 2007) and as vehicles for triggering system change (Johnson
and Suskewicz, 2009). We do so by investigating business model
changes when firms move towards more cooperative arrange-
ments, such as energy business ecosystems. More specifically, our
aim is to explore the mechanisms that enable closer collaboration
and connect business models and enable value creation and cap-
ture. We investigate the characteristics, function, and impact of
such mechanisms on the business models of the respective com-
panies by posing the following interrelated questions: how and
why do collaborators in distributed energy systems engage in
business ecosystems, and how is the engagement reflected in their
business models?
In the next section we continue developing our conceptual
argument by reviewing some of the general literature on business
models and sustainability, and their role in business ecosystems
and industry change. We then present our method and present
both within-case and cross-case analyses of three cases from the
emerging distributed energy systems industry. We discuss the
findings in the light of the extant theories and conclude with a note
on the contribution, limitations and further research.
2. Theoretical background
2.1. Business models for sustainable energy
The fact that distributed energy systems rely on a very different
logic compared to large-scale, centralised power plants, and fuel
production units (Johansson et al., 2005; Magnusson et al., 2005;
Mirata et al., 2005; Richter, 2012), implies a need for considering
the underpinning business models. Moreover, adopting the view of
227
Boons et al. (2013) that current industry structures, and thus
business models employed by companies, are not sustainable, there
is a clear need to redefine the business models within energy in-
dustry and other industries. Since new disruptive business models
are able to achieve larger system shifts (Brusoni et al., 2009;
Johnson and Suskewicz, 2009), there is a growing interest in the
connection between business model and eco-innovation research
(Boons et al., 2013; Boons and Lüdeke-Freund, 2013; Ceschin, 2013;
Halme et al., 2007; Mont, 2002; Tsvetkova et al., 2014). One of the
major conclusions of this research is that companies striving to
make radical system innovations need to shift the innovation effort
from the products or processes they control to the larger systems
they are part of. The next step is to actively construct the appro-
priate business model and engage the relevant stakeholders in such
a development (Boons et al., 2013).
According to Boons and Lüdeke-Freund (2013), business model
innovation could contribute to eco-innovation through the imple-
mentation of alternative paradigms other than the neoclassical
economic worldview that shape the culture, structure and routines
of organizations. Such sustainable business models would ulti-
mately change the way companies do their business towards sus-
tainable development. More concretely, sustainable business
models aim at creating, delivering and capturing value in a truly
sustainable way by providing products and services that improve
quality of life while doing so within environmental limits (Hannon,
2012).
A number of recently proposed business models, such as sus-
tainable Product Service System (PPS) (Mont, 2002; Stahel, 2007;
Tukker and Tischner, 2006) or Energy Service Company (ESCo)
(Fawkes, 2007; Hannon, 2012; Vine, 2005) incorporate the ideas of
dematerialisation and the switch from owning to delivering func-
tionality (Ceschin, 2013). While these models address the question
of how to decrease demand for energy or other resources through a
different way of delivering them, in this paper, we are interested in
how the energy or fuel, which is still required in some amount, can
be produced in not only an environmentally, but also economically
sustainable manner. That is, although it has been argued that
distributed, small-scale production mode is environmentally
beneficial and suitable for bioenergy production its economic
feasibility remains to be uncertain.
One major reason for why such a mode of production is strug-
gling with implementation is precisely in the interconnectedness of
business models of various actors within business ecosystems.
Value creation and value capture in ecosystems are largely deter-
mined by the industry architecture of the system. Industry archi-
tectures can be defined as “sector-wide templates that circumscribe
the division of labour” and revenue, or simply “who does what” and
“who takes what” (Jacobides et al., 2006: 1200, 1204). Once these
templates become settled, it is challenging for new, more envi-
ronmentally sustainable business models to succeed in becoming
economically sustainable as well.
Business models are connected to and must be understood in
the context of their respective industry architectures. They are
both bound by them, but may as well be vehicles in shaping new
industry architectures (Brusoni et al., 2009; Pisano and Teece,
2007). One salient feature of business models is indeed the
notion of change or transformation of the prevailing ways of
conducting business within an industry (Demil and Lecocq, 2010).
Johnson and Suskewicz (2009) argue that the system change, such
as the move to distributed energy systems, underpinning the
clean-tech economy need, among others, an innovative business
model to realize. We, in turn, argue that such an innovative
business model needs to stress the interlinks with other actors'
business models rather than focus purely on the offering, orga-
nisation or other internal factors.
228 €m et al. / Journal of Cleaner Production 102 (2015) 226e236
M. Hellstro
2.2. A system view on business models
Business models are typically conceived as devices that fore-
most describe how companies create and capture value (Amit and
Zott, 2001; Chesbrough and Rosenbloom, 2002). In their widely
cited article, Chesbrough and Rosenbloom (2002) conceptualize a
business model as a link in transforming technological inputs into
economic outputs, or more broadly, as a tool for capturing value
from innovation. Another early contribution on business models
defines it as a depiction of “the content, structure, and governance
of transactions designed so as to create value through the exploi-
tation of business opportunities” (Amit and Zott, 2001). The beauty
of the business model concept lies in the fact that it manages to
combine the relevant aspects of value creation in a way that the
more established theories, such as value chain analysis, Schumpe-
terian innovation, RBV, TCE, and strategic networks, cannot (Amit
and Zott, 2001). Therefore it has also become so popular as a unit
of analysis in the fields of strategic management and entrepre-
neurship (Zott et al., 2011).
Earlier studies have mainly considered business models as
product- (Bjo € rkdahl, 2009; Chesbrough and Rosenbloom, 2002;
Zott and Amit, 2008) or firm-level descriptions of business
(Doganova and Eyquem-Renault, 2009; Morris et al., 2005; Zott and
Amit, 2007). Whereas value capture indeed is a firm-level issue,
many studies suggest that the locus of value creation is found in the
inter-organizational relationships of firms (Dyer, 1997; Powell et al.,
1996) and that, essentially, value is co-created (Lusch and Vargo,
2006; Ramirez, 1999). In this vein Chesbrough (2006) propose
that there is a need for “open business models”, which refers to the
exploitation of innovative ideas inside the own firm, or exploration
of innovative ideas outside the own firm. The business model
concept can therefore be held as the appropriate unit of analysis for
describing the networked nature of value creation (Zott and Amit,
2009). As both value creation (Porter, 1985) and transactions are
about connecting activities, an activity system perspective (Porter
and Siggelkow, 2008) to business models has been proposed (Zott
and Amit, 2010). The framework suggests that business models
are seen as systems of interdependent activities spanning a firm's
boundaries (Zott and Amit, 2010).
The activity system perspective addresses value creation on an
ecosystem level while keeping the focus on a focal company which
actively tries to reconnect the links between itself and other com-
panies. The activity system framework cover three design ele-
ments: content, structure, and governance of transactions; and four
sign themes: novelty, lock-in, complementarities, and efficiency.
However, the activity system perspective does not directly consider
value capture (revenue model), which still is considered an
essential part of business models (Zott et al., 2011). Thereby we look
at three business model elements (content, structure, and gover-
nance) and four sources of value creation (novelty, complemen-
tarity, lock-in, and efficiency) and apply them on activities and
mechanisms creating and capturing value in highly interdependent
industry architectures.
In adopting a system view on how firms connect their business
models to one another we touch upon the topic of ecosystems. In
the literature two kinds of (business) ecosystems are discussed.
Innovation ecosystems, on the one hand, refer to the situation
when the success of an innovator depends on other innovating
firms in its environment (Adner and Kapoor, 2010). Industrial
ecosystems, on the other, build on the theories of industrial ecology
and symbiosis (Chertow, 2000; Ehrenfeld, 2000; Graedel, 1996).
Both ecosystem conceptions can be defined in terms of two as-
pects: firstly, the idea of a system of interdependent firms whose
performance depends on the actions of their collaborators (Adner
and Kapoor, 2010; Moore, 1993); and secondly: the presence of a
system-level goal (Adner, 2006; Gulati et al., 2012). While inter-
dependence in innovation ecosystems typically is perceived in
terms of technological interdependence (Adner and Kapoor, 2010)
and in industrial ecosystems in terms of material or energy flows
(Chertow, 2000; Ehrenfeld and Gertler, 1997), few studies investi-
gate the economic logic that connect the parties in an ecosystem
(Tsvetkova and Gustafsson, 2012).
3. Method
3.1. Research design
Research in business models has attracted a lot of interest dur-
ing the past decade. Their role in ecosystems and industry transi-
tions constitute an unexplored phenomenon, which justifies a case
study approach (Eisenhardt and Graebner, 2007; von Krogh et al.,
2012). A key aspect of business models is that they provide new
unit of analysis (Zott et al., 2011). As our interest lies in the
connection between the business model(s) of the focal firm(s) and
the underpinning ecosystem, we apply an embedded multiple case
design, which implies the use of multiple units of analysis (Yin,
1989).
We analyse three case studies from the distributed energy sys-
tems sector exploring the particular phenomenon of business
model innovation and ecosystems change. Three cases obviously do
not suffice as a true inductive study (Eisenhardt, 1989). Instead our
study hinges foremost upon the motivational and to some extent
the illustrative power of particular cases studies (Siggelkow, 2007).
3.2. Sampling
The cases were selected based on the principles of theoretical
sampling, i.e. we selected cases exhibiting polar characteristics so
as to uncover differences and similarities between contexts
(Eisenhardt, 1989; Eisenhardt and Graebner, 2007). First we scoped
our study so that we were looking for particular cases that could
exemplify business models in the emerging distributed energy
systems sector, where new models are required but very few have
become established in the field.
Furthermore, all cases entail a challenging business model
design task, where the business cannot be developed without
‘opening’ business model boundaries and integrating other actors
into it. However, the focal actors in all cases are of different type
and/or strive for different outcomes. Thereby they address rather
different issues, which is likely to help us in developing more
robust design propositions and theory. The general characteristics
of the cases are presented in Table 1.
The cases differ on a number of points. The first one comes from
the heating business and the latter two from the biogas business.
The first case is at the outset a rather typical supply chain that
transforms to an innovation ecosystem. The second case, in turn, is
a mixture of an innovation and industrial ecosystem. Finally, the
third case is a typical industrial ecosystem. Case 1 and 2 are triads,
whereas case 3 is a dyad, albeit non-traditional. Case 1 and 2
represent sectors, or ecosystems, addressing an overall solution or
system-level goal (Dalziel, 2007). In case 3 two widely different
sectors meet, but continue primarily supplying their respective
markets.
3.3. Data collection and analysis
Our approach is both explorative and pragmatic. All cases were
such that we set up clinical collaborative research projects with the
focal firms. Our intervention reside in designing, together with the
participating firm(s), solutions that incorporate and build on
 €m et al. / Journal of Cleaner Production 102 (2015) 226e236
M. Hellstro
Table 1
General characteristics.
Case 1 e Heat service
franchising
Type of ecosystem Innovation ecosystem
Focal firm (initiator) Energy company
Other participating firms Heat entrepreneur
Boiler manufacturer
Focal setting Triad
Number of interviews 4 27
Interviewed parties Fuel supplier, boiler
manufacturer, heat
entrepreneur, financier
certain mechanisms that in turn enable the transition towards a
new desired state. As we have worked with the companies and
collected data only during the planning stage our cases mainly
reflect the plans, i.e. the companies' intentions, that have later been
or are about to be implemented. They are all based on thorough
research projects where different actors have been heard and the
collaborating companies have been brought together to jointly plan
the new opportunities. Moreover, the fact that all companies have
accepted the general ideas and invested in them makes them at
least illustrative evidence. In that sense our methodological
approach relying on expert judgement of the designed business
models is similar to what of Kajanus et al. (2014) propose.
As our aim is to bridge the relevance gap between organization
science and managerial practice, we use a design science mode of
research, especially for the analysis of our data. A design science
approach has been articulated as especially useful in the explor-
atory phases of research as opposed to the explanatory phases
where the theoretical sciences prevail (Holmstro €m et al., 2009).
Design science hinges upon pragmatism as the underlying episte-
mological notion and uses design and engineering as academic role
models (Romme, 2003). The focus in design science is on outlining
solutions (rather than on explaining the existence of problems)
based on field-tested technological rules grounded in terms of
generative mechanisms (van Aken, 2004), or what Romme (2003)
terms an integrated set of design propositions that can be refor-
mulated into theoretical hypotheses. Recent developments in
design science methodology has argued for adopting a CIMO-logic
(context-intervention-mechanism-outcome) for developing design
propositions that can help us overcome the challenge with the
fragmented knowledge base of management studies (Denyer et al.,
2008). Research synthesis is thus considered the starting point for
studies based on the CIMO-logic. The logic builds on the identifi-
cation of a problematic context, the deployment of a required
intervention to trigger a certain mechanism that delivers an
intended outcome.
4. Case descriptions
4.1. The “Heat service franchising” case
The first case focuses on a large Finnish energy company whose
main business activities include supply of biofuel and production
and supply of heat. The focal firm, the energy company, was plan-
ning to increase its heat and fuel sales by increasing the number of
small boilers stations all over the country, since a significant po-
tential was identified in producing heat from the company's biofuel
in small-scale boilers. However, in order to enter this market the
company would need to invest into a large number of small boilers
which would burden its balance sheet. Investment in and operation
229
Case 2 e Biogas for traffic Case 3 e Biogas and farming
Industrial/innovation Industrial ecosystem
ecosystem
Biogas company Biogas company
Vehicle dealer Farmer
Transportation company
Triad Dyad
6
Vehicle dealers, waste Farmers' union, agricultural
management companies, research institute, biogas
delivery companies, biogas producer, food safety authority
producer, financer
of small-scale boilers proved to be much less profitable compared
to large heat stations that the company traditionally owned and
operated within its heat production business but where the market
was largely saturated.
The solution was based on outsourcing the operation of boilers
to local facility management companies by means of heat entre-
preneurship arrangements (cf. Okkonen and Suhonen, 2010;
Suhonen and Okkonen, 2013). The idea was that the heat entre-
preneurs in addition to their existing business would invest in the
equipment as well as operate it. To engage the entrepreneurs, a
franchising concept was developed. The concept was created
around the operation of the boilers and included financing,
permitting, training and fuel supply. However, the boilers were still
an unfeasible investment. To enhance the franchising offering, the
energy company also made an agreement with a boiler manufac-
turer for the development of a modular boiler of a standard size,
which would be part of the franchising concept. As a result, a vol-
ume order for the equipment could be made with the boiler
manufacturer, decreasing the investment costs for the potential
franchisees. The additional advantage for the energy company was
that the boilers would not appear in their balance sheet, but would
instead form a network of entrepreneurs which would act both as
consumers of biofuel supplied by the focal company and as oper-
ators of heat boilers.
In essence, the focal company had to engage in a triadic set-up to
develop their new business. Certain adjustments to the business
models of the involved actors were required in order to achieve the
ecosystem set-up in order for the focal company to operate in the
new market of small-scale heat production. The changes and new
sources of value in the business models are analysed in Table 2.
Complementarity of two businesses e fuel production and
boiler manufacturing e allowed developing an offering with which
the companies could enter the target market. Cooperation between
the companies reduced capital costs while at the same time
keeping operating costs down (manpower) and thereby enabled
the franchising concept. The roles of the companies change in the
new set-up compared to the original situation, where none of the
three companies in the triad could reach the target customers on
their own. The described collaboration made it possible to achieve
the ecosystem transition, which was required to deliver the value
proposition of all the companies. This transition is demonstrated in
Fig. 1.
By establishing collaboration with the boiler manufacturer and
introducing franchising concept the focal firm managed to ‘create’
its own customer and supplier e a heat entrepreneur. Such busi-
ness model innovation spanned the boundaries of one company,
because it required changes in the business models of other actors.
The designed concept was evaluated in a meeting with repre-
sentatives from the focal company and finally documented in the
230 €m et al. / Journal of Cleaner Production 102 (2015) 226e236
M. Hellstro

Table 2
Value creation in the ecosystem of renewed business models in the “Franchising” case.

Fuel productiona Boiler manufacturer Heat production

Content of transactions
Structure of transactions
Governance of transactions
Sources of value
Value capture mechanisms
a
Focal firm.
Fuel sales connected to overall
franchising concept (with boiler
manufacturer).
Split of fuel and heat production
activities creating a new
customer (i.e. the heat
entrepreneur).
No change
Complementarity introducing
novelty
Fuel sales þ franchising fee
Standard boilers of optimal size
and acceptable price for small-
scale heat production.
Sales directed to heat
entrepreneur instead of fuel
producer.
No change
Complementarity introducing
efficiency
No major change (internal
efficiency gains)
No change - heat production for
small consumers of behalf of
franchiser (energy company).
No change - franchiser offers
ready concept and bargaining
power over equipment supplier
(boiler manufacturer).
A new actor is introduced, the
heat entrepreneur.
Complementarity introducing
novelty and efficiency
No change (heat sales as before,
but by another actor)

Fig. 1. Ecosystem transition in “Franchising” case.

form of a concept manual. It is important to note that all concerned
stakeholders were heard (interviewed) when designing the
concept, i.e.: different functions within the energy company, two
different boiler suppliers and an entrepreneur. In addition, two
institutions providing finance for franchising entrepreneurs, and
both local and national authorities were interviewed. The plans
were considered feasible by all parties.
4.2. The “Biogas for traffic” case
In the second case the focal firm, a biogas production business,
was exploring opportunities beyond electricity and heat produc-
tion, where biogas as a source of energy is not very competitive in
an urban region like the one under scrutiny. The focal region is a
medium-sized municipality in Finland, which has a population of
around 200 000 people, and thus a rather large public trans-
portation system. This fact makes the use of biogas as a traffic fuel a
potentially more viable option. But to exploit the opportunity, and
to develop a local energy solution, the focal firm had to align with
public and private transportation businesses. Transportation and
waste management companies are potential large consumers of
biogas, and therefore their commitment to switch to biogas tech-
nology was crucial for the success of the overall biogas-for-traffic
ecosystem. However, the move into the traffic fuel business
would require a considerable investment in a biogas distribution
system and that was yet to be done, while potential customers
proved to be reluctant to invest in gas-fuelled vehicles. Low con-
sumption of biogas, in turn, hindered the payback of the gas
distribution investment and put the business of a biogas company
at risk.
There are a number of other uncertainties making the success of
biogas business increasingly dependent on a larger business
ecosystem. Firstly, the attractiveness of an investment into gas-
fuelled vehicles is not only defined by the availability and quality
of the biofuel, but also by the reliability and value of the vehicles as
such. This concerns the availability of gas-fuelled vehicles, trucks in
this case, on the local market, maturity of appropriate maintenance
network, second-hand value of the vehicles, etc. As a result, another
actor in the ecosystem e a vehicle dealer e appeared to be a crucial
company that needed to be integrated more deeply into the focal
business ecosystem.
Based on the outlined challenges, a joint offering was designed,
which included the vehicle, a long-term and fixed-price contract
for biogas, and optional leasing and maintenance agreements. With
such agreement, the total lifecycle cost of the investment into a gas-
fuelled truck was more competitive compared to traditionally used
diesel vehicles for which the fuel price is the single major business
risk. A long-term fuel contract aimed at reducing customers' un-
certainty regarding fuel availability, while it at the same time
ensured the profitability of the biogas distribution investment by
securing the revenue stream. As a result, the business models of the
respective companies required a certain change. An overview of
this transition is presented in Table 3.
The major sources of value creation in this case include com-
plementarities and lock-in. Complementarity of a gas-fuelled
vehicle and biogas, initially seen as a barrier, is turned into a
value proposition with higher value compared to competing diesel
 €m et al. / Journal of Cleaner Production 102 (2015) 226e236
M. Hellstro 231

Table 3
Business model change of the firms in the “Biogas for traffic” ecosystem.

Biogas productiona Vehicle sales Transportation

Content of transactions
Structure of transactions
Governance of transactions
Sources of value
Value capture mechanisms
a
Focal firm.
Required volumes of biogas are
guaranteed for long term at
stable prices; biogas is
promoted together with gas
vehicles.
Coordinate with vehicle sales,
joint offering with vehicle
dealer.
No change
Complementarity introducing
novelty; Lock-in.
No change (gets a part of new
overall value pie).
New type of vehicles (gas-
fuelled trucks) and vehicle
reliability (maintenance).
Coordinate with biogas supply;
gas-fuelled trucks become a
part of joint offering with
biogas producer.
No change
Complementarity introducing
novelty.
No change (gets a part of new
overall value pie).
No change (still selling
transportation services).
No change (still buying fuel and
new fleet separately).
No change
Efficiency; novelty
Internal efficiency gains thanks
to reduced business risk and
costs.

Fig. 2. Ecosystem transition in “Biogas for traffic” case.

technology offering. This is the way collaboration with the vehicle
dealer can enhance the offering of the biogas company. Alignment
of the companies' activities is reflected in the value creation and
capture systems through the division of responsibilities, risks and
benefits.
Lock-in enhances the total value produced in the business
ecosystem, since it mitigates customers' risks related to the fuel and
at the same time ensures sustainable revenues to the biogas com-
pany. Lock-in of the fuel consumers is achieved both through the
long-term fuel contracts and through the fact that once a gas-
fuelled vehicle is purchased, the user is locked-in in the biogas-
for-traffic ecosystem. Without inducing many changes to the
transportation company's business model, the new offering is able
to deliver the benefit of stable and competitive operating costs. The
transition in the focal ecosystem is demonstrated in Fig. 2.
The designed concept was evaluated throughout continuous
discussions with the relevant actors: vehicle dealers, local trans-
portation companies, such as delivery and public transportation
companies, and the biogas company. In fact, the final model of
cooperation was shaped by the concerns and needs of various ac-
tors so as to form a winewin situation. Moreover, a joint workshop
was held involving vehicle dealers in order to validate the potential
for the new business model.
4.3. The “Biogas and farming” case
In our third case the focal firm, a Finnish biogas business, is
looking for ways to increase its capacity by adding new biomass
sources to its repertoire. One such source is the local farming
business, with which the focal firm has to align so as to expand the
biofuel business and guarantee green biomass supply. At the same
time, an increase in biogas production volume creates the need for
ensuring that the by-product, i.e. digestate, is disposed of in a safe
and feasible manner. Farms can provide green biomass to be used
for biogas production, such as hay, and can utilise digestate as
organic fertiliser. Therefore, they act as a crucial business actor that
needs to be integrated in the biogas business.
The key challenge in establishing this supply relationship is in
the fact that the current business model of farmers builds on uti-
lising available fields for growing most profitable food crops. For
the biogas company it means that there should be a proper
incentive provided to the farmers for them to start using fields for
growing hay instead of highly valuable grain and selling it to the
biogas producer. Following this model, the biogas producer needs
to purchase hay or other green biomass at the price that is equal or
higher compared to the grain price, so that the farmer's revenue
would not decrease. Such high price is unacceptable for the biogas
company, since it ultimately leads to an increased price for biogas.
As a result, the biogas producer would not be able to offer the
competitive price for the biofuel, which will destroy its offering to
the customer. Moreover, supply of green biomass based purely on
price bargaining is unsustainable for the company that strives to
produce and deliver biogas on a fixed-price and long-term contract
basis (as described in the previous case).
The solution for solving this challenge is based on introducing
ley farming, where fields in turns stay fallow, i.e. unused for
growing food crops, for a year to then be taken back into growing
grain. The hay that is growing during the ‘fallow’ periods is supplied
232 €m et al. / Journal of Cleaner Production 102 (2015) 226e236
M. Hellstro

Table 4
Business model change of the firms in the “Biogas and farming” ecosystem.

Biogas companya Farmer

Content of transactions Stable supply of biogas at a competitive and Organic farming based on ley farming.
stable price.
Structure of transactions The farmer becomes long-term supplier due to Biogas supplier acts as fertiliser supplier and
common production planning. customer for hay.
Governance of transactions No change No change
Sources of value Complementarity introducing novelty and Complementarity introducing novelty and
efficiency. efficiency.
Value capture mechanisms Increased value of by-product (digestate). Also Price premium of organic products and reduced
some internal efficiency gains through reduced cost of fertilizing.
cost of raw material.
a
Focal firm.

Fig. 3. Ecosystem transition in “Biogas and farming” case.

to the biogas producer. By practicing ley framing and utilising local authorities, and through discussions with farmer's union
digestate from biogas production as organic fertiliser, a farmer is representatives.
able to eliminate or significantly reduce the use of synthetic fer-
tilisers that constantly increase in price. In such case it is even
5. Discussion
possible to switch to organic farming, where the agricultural
products have higher value and price. Also, when the fields are
The chosen cases differ from more traditional supply chain
managed in this way, the overall yield from all the fields and the
optimization cases, where various actors in one value chain and
revenue generated by the farmer are apt to increase. For the biogas
acting in connected industries strive for improved collaboration. In
producer this means that by extending the collaboration with the
the outlined cases the additional challenge lies in the diversity of
farmer they can reduce the cost for purchasing the hay. At the same
the actors involved in the ventures and their traditional discon-
time the problem with disposing the digestate can be solved.
nectedness from each other's businesses. To this end, all the com-
In order to achieve collaboration as outlined earlier, the farmer's
panies in the three cases have sought for new business
business model need to undergo significant change. Although the
opportunities in system-level goals by interconnecting and by
two business actors operate in traditionally disconnected in-
becoming interdependent upon each other. The increased inter-
dustries, they may gain significant benefits by introducing joint
dependency is bound to, in addition to environmental sustain-
production planning and interchanging material flows. Applying
ability (Boons et al., 2013), increase the overall value creation
the activity system perspective on the business models of the
potential in the system, a key outcome of business models (Amit
involved ecosystem actors, we analyse what is the source of value
and Zott, 2001). In the next we discuss how the increased system
creation and what business model change is required in order to
value is created, shared and captured, by the focal companies in our
create and deliver it, as shown in Table 4.
three cases in concert with their collaborators. As a basis for the
This case is an example of how the biogas producer's and
discussion we have summarized our cases in Table 5. In the table we
farmer's business models are integrated in order to create more
use the CIMO logic (Denyer et al., 2008) to pinpoint the value cre-
value at an ecosystem level. The value is created mainly from effi-
ation and capture mechanisms employed in the system transitions,
ciency improvement in terms of production processes of both
rather than to develop design propositions per se.
parties and by lock-in that reduces uncertainty of stable biogas
supply promise. Thus, the biogas producer is able to optimise its
production process by effectuating the business model change of a 5.1. System level goals and increased total value creation
farmer. Total value creation, although companies operate in
different industries, is increased through collaboration. The As illustrated in the within-case analysis, the changes in value
ecosystem transition happening due to joint production planning is creation could only be understood from a system perspective. Due
depicted in Fig. 3. to the challenging industrial contexts, where collaboration be-
The designed concept was evaluated in a workshop, which tween traditionally unconnected (or less connected) companies
involved an agriculture research organisation, biogas company and was required, complementarity of products, services or side-
 €m et al. / Journal of Cleaner Production 102 (2015) 226e236
M. Hellstro
Table 5
System-level analysis of the cases.
Franchising
Context Problems for the current business models to
bear the capital and operating costs for smaller
scale boilers.
The heat entrepreneur lacks capability to set up
successful heat service business, partly due to
too high initial capital expenditure.
Intervention Introduction of a franchising concept for a new
actor in the ecosystem.
Pooling of franchisee boiler orders to a
manufacturing partner.
Mechanism Standardised business format makes starting
business easier for entrepreneur (transaction
efficiency) and ensures economies of scale for
boiler manufacturer (efficiency).
Energy company is able to achieve new revenue
streams from franchising and increased fuel
sales.
Outcome Business format franchising and outsourcing of
non-core activities.
Potential for increased total value creation
through an innovation ecosystem.
streams of various companies appeared to be the initial reason for
aligning them into functioning business ecosystems.
The common feature of all three cases is that the need of a focal
firm to develop its business ultimately requires redesign of the
business ecosystem it operates within. The redesign can be ach-
ieved by increasing collaboration with certain relevant companies,
driven by complementarity as the primary source of value. In the
first two cases it is the complementarity of the upstream actors'
offerings that enable the downstream actor to introduce a new
value proposition. However, without making changes to their
business models, the downstream actors could not promote their
own value propositions. In the third case it is complementarity of
side streams e biomass and digestate e that enables more efficient
production for both companies, and a new, more sustainable of-
fering for the farmer.
Complementarity, in turn, induced a series of other value
drivers. Thus, the potential of efficiency, lock-in and novelty to
create the system value depended on the initial context, i.e. the
need for business ecosystem change and current situation. For
example, the challenge of inadequate capital investments in rela-
tion to revenues and operating costs of small-scale boilers was
solved by redesigning the business model of boiler manufacturer
towards a more cost-efficient serial production, which was more
appropriate in that concrete context. In the ‘biogas and farming’
case value creation was hindered by poorly optimised production
costs, which depend largely on the business model of another
company e the farmer. In this case, efficiency was achieved by
benefiting from complementarity of side streams of the companies
and the introduction of joint production planning.
Another challenge common for newly developed business eco-
systems is the uncertainty regarding who is the first to make in-
vestments, the profitability of which will ultimately depend on the
investments of others. In the ‘biogas for traffic’ case this uncertainty
is tackled by creating a mutual lock-in between the fuel supplier
and its customer. This is achieved by offering the customer a value
proposition that integrates the complementary products e gas-
fuelled vehicle, biogas, and relevant services e in one package,
233
Biogas as traffic fuel Biogas and farming
Transportation company fear to invest in gas Current business models make hay an
driven fleet due to uncertainty in gas supply and expensive source for biogas production.
vehicle reliability.
Joint offering for end user based on stable fuel Biogas production is deeply integrated with
price, leasing, and a long-term maintenance biomass production (joint production
contract. planning), leading to the possibility of nutrient
cycling and organic farming.
Biogas consumption and steady supply are Both farmer and biogas company achieve
ensured from the start of the system operation efficiency improvements in production and
in order to facilitate the simultaneous increased value of their offerings to customers.
investment into the new vehicles and
distribution system. This is achieved by
mitigating transportation company's
uncertainties about biogas technology
(transaction efficiency) with a joint offering.
Both biogas company and vehicle dealer are
able to increase the sales volume of their
products and services.
‘Chicken and egg’ problem is solved. New business model that builds on the low
Investments can be made simultaneously. price for hay and the ensured disposal of
Initial ecosystem for biogas to be used as traffic digestate.
fuel is created. Potential for increased total value creation
Potential for increased total value creation through an industrial ecosystem.
through an innovation ecosystem.
thereby securing the profitability of their investment into the ve-
hicles in the long term.
Finally, novelty appeared as an important source of value crea-
tion in ‘franchising’ case. In the attempt to optimise capital in-
vestments and operating costs, the focal firm e an energy company
e designed a franchising concept, which ultimately created a new
player in the ecosystem e a heat entrepreneur.
In all the discussed cases new value is created through the
exploitation of various collaboration mechanisms between the
companies in the triads or a dyad. That is, none of the companies
are on their own able to achieve the system level goals, but it is
possible only within a functioning ecosystem. In that respect, the
business model of an individual company can reflect only part of
the overall value creation. But it can be seen as a unit that serves a
certain function in the ecosystem, thereby enabling system value
creation.
It can be summarized that the overall ecosystem-level value is
created in the transactions and non-transactional links between
the companies. Thus, the analysis of one business model in isolation
is not able to explain the way towards increased value creation.
However, it is a crucial concept for grasping the value capture of
each individual company, which in the end is the main incentive for
engaging in collaboration. It is important to note that also non-
transactional links between the companies were established in
order to ultimately create concrete business and financial value to
the respective companies. In the ‘Franchising’ case, although the
boiler manufacturer did not supply the equipment directly to the
energy company, the introduction of franchising concept by the
latter company enabled serial production of small-scale boilers and
a more profitable offering for the heat entrepreneur.
It is to be underlined that value capture was taken into account
in the development of the ways to enable collaboration among the
respective companies. As demonstrated in Tables 3 and 4 each
company is able to benefit from being part of the new business
ecosystem in a different way: depending on their core industry,
most critical issues to their current business model and ambitions
for growth. A focal firm in such a case takes a leading role in
234 €m et al. / Journal of Cleaner Production 102 (2015) 226e236
M. Hellstro
understanding how it can achieve its goals (of entering new mar-
ket, enhancing current operations, etc.), and how this depends on
the actions of other ecosystem actors. Upon understanding the key
drivers in the businesses of the respective actors, the focal firm can
incentivize them in order to adjust their business models to be fit
for achieving the value that can be generated only within a func-
tioning ecosystem.
5.2. Increased interdependence through collaboration mechanisms
Taking the perspective of the focal firm in each case, it is not
enough to innovate one's own business model and attempt to fill
the missing functions in the ecosystem in order to achieve system-
level goals. This is often neither financially feasible nor always
possible. Rather, the changes in the business models of other actors
achieved through increased collaboration allow for creating value
that is inaccessible for one company on its own and for developing
a resilient business ecosystem consisting of companies that benefit
from cooperation with the focal firm.
Based on the discussion in the previous section, it can be argued
that there is a need for both creating and capturing system value
when attempting to establish collaboration within business eco-
systems. Identifying the value drivers in each ecosystem member's
individual business was put forward as a pre-requisite for estab-
lishing the ecosystem. However, as can be seen from Table 5, there
seems to be barriers to exploiting these drivers. In the studied
cases, the focal firms, at times in concert with their lateral collab-
orator, enacted various mechanisms to make the value drivers
come into play. We therefore use the concept “collaboration
mechanism” to signify something that both triggers and enhances
collaborative value creation and capture. Through our three cases
we have illustrated how designing such collaboration mechanisms
informs business model redesign. Thus, envisioning of a desired
ecosystem structure and function is followed by the development
of collaboration mechanisms that would reveal and address the
challenges related to the current business models of relevant
ecosystem actors. In essence, a collaboration mechanism reflects
the part of overall value creation for each company, i.e. its role or
function in the ecosystem, and value capturing for each company.
Ultimately, it helps to achieve ecosystem transition.
As Table 5 shows, the key element in all the cases lies, on the one
hand, in being able to identify the impediments in the prevailing
business models to achieving the desired ecosystem goals, and on
the other, in understanding the value drivers in the new business
models. By harnessing these drivers the companies are incentivized
to participate and cooperate in the new ecosystem. In the ‘biogas
and farming’ case, the need to integrate farming and energy pro-
duction industries posed the question of what the mechanisms are
that may ensure long-term and sustainable collaboration. By
establishing long-term contracts between the biogas supplier and
the transport company in the “biogas as a traffic fuel” case a sig-
nificant risk was reduced for both companies which enabled the
investment needed in order to make the system function. The
pricing and contractual mechanism also enabled the companies to
focus on their core competence (logistics and processing organic
material). Similarly, by establishing a franchising concept based on
heat entrepreneurship, as described in the corresponding case, the
energy company was able to offer additional business to the local
facilities managers without forcing them into plant design and
permitting, while at the same time increasing their own fuel sales.
In line with the idea of purposeful structuring of activity systems
(Zott and Amit, 2010), we attempt to show how ecosystem transi-
tion needs can inform the redesign of the business model of the
focal company through the development of collaboration mecha-
nisms. The framework is presented in Fig. 4. Through this
framework we aim to provide a better understanding of the ante-
cedents and mechanisms of business model design and the role of
collaboration mechanisms in this process.
The value of collaboration mechanisms is, therefore, in enabling
business model design that is based on the need for transition in
business ecosystems and the current business models of all rele-
vant ecosystem actors, not only of the company that takes the lead
in ‘shaping’ the ecosystem. Therefore we subscribe to a view ac-
cording to which the industry architectures in fact may be shaped
and redefined by the involved actors (Jacobides et al., 2006;
Normann and Ramírez, 1993), similar to the notion of market
effectuation (Sarasvathy and Dew, 2005). Firms shape structures so
as to facilitate knowledge integration and to introduce new busi-
ness models (Brusoni et al., 2009). Therefore focal, “integrator”
firms need to develop a business understanding that covers larger
parts of the overall system and to focus on the business benefits of
all stakeholders or, in other words, to understand the underlying
business ecosystem. Further, collaboration mechanisms become a
crucial element in building boundary-spanning business models,
which imply understanding and reflecting a larger ecosystem in the
business model design.
6. Conclusion
In this study we have analysed how firms in the distributed
energy systems engage in business ecosystems and how that re-
lates to the business models of the firms. In general, firms engage in
business ecosystems so as to harness a higher total value creation
that would not be available for each individual firm. Despite their
inherent value potential, business ecosystems do not emerge like
natural ecosystems, but need to be built. We have illustrated how
this can be achieved by exploiting and connecting the value drivers
of ecosystem members through various collaboration mechanisms.
In essence, to achieve system change the corresponding business
models need to be collectively built around the underlying value
drivers, their connections and the facilitating mechanisms. The
collaboration mechanisms focus on aspects of the different busi-
nesses' production and logic. Collaboration mechanisms are vehi-
cles of business model innovation that enable new business models
and business by connecting elements that previously were not
primary parts of the business models. To some extent our findings
echoes the well-known fact that successful entrepreneurs create
and depend on their networks. However, rather than strategizing
for oneself (Stuart and Sorenson, 2007), we have argued that en-
trepreneurs and larger firms alike in the renewable energy business
may benefit from a system perspective with the focus on drivers, i.e.
collaboration mechanisms, for increased total value creation, which
includes not only economic but also environmental and potentially
social value. Such approach can yield in developing business
models that are sustainable.
Our study constitutes an attempt to connect the research
streams on business models and ecosystems in the distributed
energy systems industry. We use the idea of boundary spanning
business model designs (Zott and Amit, 2007) to extend earlier
studies that have pinpointed the influence of various institutional
factors on the choice of business model (Provance et al., 2011). We
suggest that in the distributed energy systems industry a profound
feature of business models is the way they make companies
interdependent upon each other and how they share common
business model elements so as to drive value, not only for them-
selves, but also for their partners. In this regard, we suggest
different value drivers are exploited through what we have called
“collaboration mechanisms”. We suggest collaboration mecha-
nisms be an additional antecedent to business models that has to be
accommodated in the business model designs just like value
 €m et al. / Journal of Cleaner Production 102 (2015) 226e236
M. Hellstro
Fig. 4. Framework for business model innovation in ecosystem transition context.
drivers. Differently put, from a business ecosystem perspective we
conceptualise interdependencies in terms of the linkages between
the business models of the ecosystem members, rather than in
terms of technological connections, as previous literature tend to
(Adner and Kapoor, 2010; Chertow, 2000). This allows us to focus
on, and exploit, the commercial logic that constitute a subsequent
condition for system change. In sum, in our view a business model
in the distributed energy systems industry is not only a matter of
choice under different institutional pressures, but an active shaping
process trying to render a local business ecosystem commercially
viable. By specifically looking at value creation and capture, i.e.
economic sustainability, of distributed energy systems we have also
contributed to the emerging literature on sustainable business
models (Boons et al., 2013) and renewable fuels (Richter, 2012).
Indeed, to sustain environmental sustainability also needs to be
economically sustainable. The proposed collaboration mechanisms
may also provide a link between the micro and macro levels needed
in architectural or system innovations for sustainability (Boons
et al., 2013; Gaziulusoy et al., 2013).
This paper is to a certain extent a preliminary probe of new
terrain that we hope it will help stimulates further research, lead-
ing to a better understanding of how business models drive
collaboration and system change. Such further research could,
among others, address some obvious limitations of our work. First,
we invite scholars to include more cases in the study, or even to
pursue a quantitative study, so as to develop taxonomies of
collaboration mechanisms. Such an endeavour would certainly
benefit from including other dimensions than the economical that
this study has focused on. In particular, social mechanisms like trust
ought to be included in such a study (Jones et al., 1997). Second, we
have focused on the narrow, yet important, context of the transition
to distributed energy systems. A natural extension of the presented
ideas would be to test their applicability in other distributed or
local contexts (Johansson et al., 2005; Mirata et al., 2005).
Acknowledgements
We express gratitude to the Finnish Innovation Fund Sitra and to
the Finnish Cultural Foundation for funding the research project
that produced data for this research. The conceptual part of this
research has been conducted within FIMECC Ltd.'s (Finnish Metals
and Engineering Competence Cluster) I&N (Innovation &
235
Networks) and REBUS (Towards relational business practices)
programs. Funding from Tekes e the Finnish Funding Agency for
Innovation (1121/13) e is gratefully acknowledged.
We also want to thank the two anonymous reviewers, whose
thoughtful comments and recommendations certainly helped to
improve the quality and argumentation of the article. We also want
to thank the business partners involved in the research project for
their commitment and collaboration. As always, all the remaining
mistakes are the authors' own.
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