ROI Models in Consumer Goods Industry

We recently helped a multi-billion dollar consumer products company understand how extra financial factors can be included in ROI analysis in the consumer packaged goods (CPG) industry. These include:

Business risks associated with environmental issues
Carbon prices and offsets associated with carbon emissions
Benefits from tax and other economic incentives
Benefits from mitigating future regulatory risks
Benefits from improved employee retention and recruitment
Benefits from market perceptions of transparency
Benefits due to enhanced corporate and brand reputation

Based on our work, our client could build a more compelling case for investments in eco-initiatives at the company. Our analysis also helped us benchmark our client against eco-ROI practices among the leading players in the CPG industry.

Partnerships for New Business Models

We are currently working with local government agencies and businesses in California to create new business models for energy efficiency and solar rooftop deployments in commercial buildings. Our work includes:

Development of financing models to address upfront investments,
Evaluation of options such as property tax assessments to recover payments,
Development of ROI models under different scenarios,
Evaluation of technologies and vendors,
Implementation of collaborative adoption models to encourage participation.

Our goal is to create a toolkit for new business models for public-private cooperation. We expect this toolkit to be used by other local governments and businesses to rapidly implement energy efficiency and clean energy projects.

Models

While primary innovations in technology, process, products and services, and organization are important, rapid and sustained changes in business take place when business model innovation is successfully developed and deployed.

Business model innovations combine process, product and organizational innovations to deliver and monetize customer value in fundamentally new ways.

For example, the Internet revolution spread rapidly once Web-based companies delivered products and services and enabled customers to pay for them over the Web. As a result, these newer Web-based business models began to disintermediate more established bricks-and-mortar players who used traditional business models.

Business model innovations will be the key drivers of the low carbon economy.

Enterprises that truly understand and can capitalize on the new business models enabled by low carbon and clean energy opportunities will be the ones that will lead the way in the future. Recent surveys of CEOs suggest that business model innovations in their industry will be their most important focus going forward.

However, business model innovation is hard to execute and is often a long and difficult process that needs to be implemented in stages. It begins with a detailed understanding of the business case for the primary innovation.

ROI Models
Without a clear and compelling business case, usually demonstrated in a return on investment (ROI) model, primary innovations often fail to cross the chasm that separates innovators from the early majority of adopters. Large-scale transition to the low carbon enterprise will depend significantly on the availability of relevant and accurate data on the costs and benefits of investments in energy efficiency, clean energy and other low carbon initiatives. Aside from modeling conventional costs and benefits, the business case becomes much more compelling and relevant if seemingly intangible, or extra financial, factors are also incorporated into the analysis.

Business Models
While business models are frequently discussed, they are rarely understood well. Our work with new business models is grounded in our decade-long experience as entrepreneurs and consultants creating new business models in the high tech industry. In the last two years, we have tracked and compiled a variety of energy efficiency and clean energy-based business models being implemented by innovative enterprises. We have worked with local governments, energy service providers, electric utilities, technology vendors, and other businesses to develop, test and refine these business models.

Our experience is that a clear understanding among managers of new business model opportunities in their industry is absolutely crucial to leadership in the emerging low carbon economy.