A sustainable business model for ports
With the signing ceremony of the Declaration of the World Ports Sustainability Program fresh in our minds, more than a thousand ports signed up for unprecedented change. Embracing the 17 Sustainable Development Goals in their policies, strategies and operations calls for a renewal of port business models. Future generations will not accept opportunistic short term focus on profit maximization at the expense of planet and people. Ports, shipping and transport companies will have to serve societal goals as well. In forthcoming years, ports will have to come to terms with their direct and indirect stakeholders. In many places around the world, ports seem to have a blurry view on the contribution to society. What to focus on, how to position against the competition, what are key resources and who should be partners in the process?
Business model canvas
Business model canvases may be instrumental in gaining a better understanding of the business they are in. Instead of lengthy reports, a canvas helps to communicate to the team as well as to customers why they should buy their products or services. In one simple overview it helps to bring into focus what has to be done for a sustainable business proposition. However, we will have to adjust the business model canvas to the port business context.
Would it be possible to capture a port’s value proposition in a business model canvas, if we tweak the traditional canvas and place it into a port business context?
A Superstory
The first and foremost addition for a port compared to the original business canvas is the superstory. The superstory is more than a port vision, it is a narrative that engages all stakeholders in the port ecosystem and takes everyone on a journey towards an apparently impossible ambition not so far away into the future.
A superstory is the narrative that can engage all stakeholders to take on the journey towards an almost impossible ambition
Such a storyline makes it possible to resolve disputes between users of the port space not from the position as mediator, but from the position of a leader who guides everyone into the ‘new era’. The superstory may ultimately reconcile two opposite goals, such as automating processes while at the same time adding jobs, or turning to renewable energy sources, without scaring off existing oil refinery companies. In the port of Rotterdam, such a superstory is being told with ‘digitisation’ as its plot and ‘transition’ as its cliffhanger: digitisation of the port (and eliminate waste in all possible ways in supply chains) and energy transition away from fossil fuels towards a port as a hotspot for renewable energy, circular supply chains and bio-chemicals. It’s an art ànd science for the directors is to unravel the story at the right time and the right pace.
From the outside in
When is it the right time and at what pace the transition to the new value proposition should proceed? There’s no straight answer, but listening and involving stakeholders may tell half the story.
Customer segments translate into global value chains
Traditional business canvases distinguish between customer segments. In a port contexts this translates into determining what global value chain is being served, in other words what are the leading industries the port is catering for in terms of handling capacity, provision of space and clustering of port related activities? Global value chains are often coordinated by multinationals and have rapidly evolved on top of advancements in information, communication and transport technologies. The fragmentation of production processes and international dispersion of tasks and activities within them have led to the emergence of borderless production systems. As such, to attract commodities to a port, one has to understand the peculiarities of the trades within these global value chains.
Customer relationships
Once we know which value chains to focus on, one has to determine the type of customer relationships. These multinationals with their dispersed and fragmented supply chains put an incredible amount of resources into coordinating supplies and stocks around the globe, trying to meet production schedules and sales seasons. These companies want a consistent, high service levels in all countries wherein they are operating. They want deeper relationships, stronger partnerships, ports that can support them in further streamlining supply chain processes. Ports serve as gatekeepers for national authorities, like the customs authorities and several inspectorates. Servicing both public and private principals, requires ports to invest heavily in digital solutions. Digitization of port services assists these companies in connecting the dots within their value chains. Ports are not just there to function as a node in the network, they are solution providers for creating fully transparent and real-time visible transfers of their cargo, using sophisticated communication technologies as well as personal relationships at the same time.
Positioning
A new feature that I propose to add to the port business canvas is positioning. In contrast to companies, location is a key determinant for port competition. What distinguishes winners from losers? According to the World Port Reform Toolkit (2008), at least four factors influence the way ports are organized, structured and managed: 1) the socio economic structure: market size, market economy, open or closed market with neighboring countries, 2) historical developments, also referred to as port evolution, 3) geographical location, such as at a deep sea, a riverine location or favorably located in between main trade routes; 4) types of cargo being handled. Numerous scholars have accumulated insights into how ports compete to one another. Porter’s diamond model is a commonly used model that explains the position of ports towards its rival ports, based on factor conditions, demand conditions, supporting industries, government and context for firm rivalry. This basic model was extended by Van Den Bosch et al. (2011) with the concept of strategic value coming from connectivity with the oversea’s ports and hinterland networks. Transport geographers like Notteboom have provided understanding on mechanisms that distinguish winners from losers because of the underlying mechanisms of selection, path dependency and disruption.
From the inside out
The outside in reasoning provides an external, market driven focus on port development. The other half of the story within the port ecosystem itself. The central question is with whom to get the job done and who is picking up what role in the execution? The inside out perspective looks at the key activities, what resources are being allocated and how motives and interests of partners are managed.
Key activities
In broad terms, port’s critical business functions are marine services for navigability of arriving and departing ships, cargo operations, logistics services connecting overseas’ origins to destinations and engineering/maintenance for guaranteeing availability of capacity in terms of space, equipment, machinery and infrastructure. Execution of these activities requires either own resources or the cooperation of other service companies, such as the pilots, towage companies, terminal operators, logistics companies, even ICT companies. Other functions may be kept in house, such as civil engineering, maintenance of quay sides, and vessel traffic services.
Key resources.
The first, second and third most important resource a port needs to have is location, location and location, nowadays often referred to as the port ecosystem. The more resourceful the port ecosystem is, the more it enables businesses to thrive on top of the fertile resources of the ecosystem. These resources come in different levels and in a variety of forms. On the macro level these are capital, (government) subsidies, a constructive government with a stable set of rules and regulations, and technology. On the cluster (meso) level, it provides accessibility to talented and skillful labor, energy, consumer markets, and advanced supplier and customer base. On the micro company level, resources apply to an agile operating companies, but also the provision of land, utilities, visibility tools, connections by multiple modes of transport.
Partnerships
Fostering sustainability and societal impact is one thing, true corporate ‘societal’ responsibility is not easily done. It requires a balance between economic goals like prosperity, employment and economic growth and societal goals. Growing the business is a collective objective based on inclusive business models. Transition to a sustainable port is a people’s effort, a matter of trust, commitment and willingness to share ideas and information. In practice this means building, maintaining and strengthening connections between people, businesses and governments within the port cluster, between ports and with adjacent cities, with inland ports in the hinterland, with other cargo generating clusters – like tourism, agriculture, or the food processing industry – as well as with strategic partner ports overseas.
Focus on impact as a way to bring value to society
Societal value
The original business canvas brings focus, but is less suitable for port development companies, who often operate in a public private institutional constellation. Who has ever lived near of visited a port has experienced that benefits not necessarily offset the negative effects in the direct vicinity of the port. It is often a congested area with lots of heavy traffic, an area with heavy industry emitting toxic, smelly gases into the air. The traditional canvas model misses the ability to distinguish between who is feeling the pain and who is receiving the gains. Investments are usually a joint effort between public authorities and private companies, risks are divided over the partners who is best equipped to assess and manage the risks. The business canvas also doesn’t take into account the macro political environment. Communities are no longer satisfied with firm objectives such as tonnage throughput. Neither are they satisfied with cluster effects, such as direct employment and value added. What communities seek is an improvement in well-being, which is both prosperity, quality of life and a safe and secure environment to live in.
Value proposition
All of the above items are used to set a promise forward. The value proposition brings into focus why a customer would want to pay for the product or service. In port language, a value proposition often translates into a masterplan. An outlook into the future is crucial as is an adaptive approach to port planning. Visioning what port you want to be in the next 15 year is hardly possible nowadays, therefore development teams set up continuous feedback loops and interactions internally as well as with customers. The masterplan details out the development of available space in existing a new port areas and functions as a switchboard, not as a fixed roadmap. Is not just useful for port planners but also for stakeholder managers. It assists in informing, involving and engaging current and future port users, as well as indirect stakeholders how to adapt to a changing world.
Risks
What’s so compelling that the customer does not see any other choice then to do business with this port? A value proposition is only compelling when it both brings value as well as a business model that generates cash flows: revenues and inevitably costs. Outgoing and incoming cash flows in port development often do not flow in and out at the same time. There can be years in between. Building port infrastructure requires large upfront investments. Market dynamics make timing difficult. When is it the right time to build? Who bears the risks? If there are no port users yet, the investments cannot be earned back. When capacity is not available, a customer may deviate to another port who does have space. Some industries prosper, others decline. There are not only commercial risks, but also risks coming from an unstable government, strategic actions by competitors and the advent of disruptive technologies. For a port canvas model to give a complete overview, risks will have to be expressed on the canvas as well.
Two sides of the same coin
The original business model canvas does not seem to fit for port development companies. There are indeed other ways, such as business plans, vision documents, economical and environmental impact assessments to express a value proposition to stakeholders. What the port canvas adds is a more comprehensive and user-friendly tool which brings into focus what value is proposed and how key activities, resources and partners fit in. The superstory sets a course into the future, with the director orchestrating the sequence of events, through partnerships. Altogether, the canvas helps to better communicate and see the connections between market requirements and the port ecosystem’s capabilities, and how to make the transition to the desired value proposition. The societal value component brings the impact of port’s key activities for society at large. These linkages are essential for the port to tell the story how the port can maintain (position) and sustain (proposition) competitive over time given the highly dynamic marketplace.
Communication and cooperation are actually two sides of the same coin
What is more important is not the business canvas model, it is the narrative. Communication and cooperation are actually two sides of the same coin. As long as the story that is being told is engaging, people can relate and even feel they are part of the story, part of their own future where no one is left behind.
The above insights on societal value propositions and new business models for ports through partnerships are derived from action research activities. Specific training materials have been developed to facilitate workshops with port stakeholders. If you think a port business canvas may be useful to your port, call or email me. The ambition is to make this canvas work in ports around the world. Using your port ecosystem, we can challenge the business model canvas, and shape and see what works to create a compelling storyline for building port partnerships and ultimately deliver the value proposition. Also comments and constructive feedback are welcome.
Mail: m.jansen@ese.eur.nl / Tel. +31 6 81016678.
Sources used:
Business Model Generation (2010), A. Osterwalder, Yves Pigneur, Alan Smith, Wiley.
The strategic value of the Port of Rotterdam for the international competitiveness of the Netherlands (2011, F.A.J. Van den Bosch, R. Hollen, H.W. Volberda, M. Baaij, Rotterdam School of Management
Partnerships Resource Centre, https://www.rsm.nl/prc/
World Port Reform Toolkit, (2008) WorldBank, Washington DC
