Should Entrepreneurs Have to Choose Between Being Digital or Sustainable?

Thanks to their capacity to transform companies and industries, entrepreneurs play a crucial role as agents of change. Their disruptive vision, their propensity to question the status quo, to experiment and take risks, make them pioneers of new business ideas. As a result, entrepreneurs can offer innovative solutions to the enormous social and environmental challenges we are facing.

However, to generate long-term sustainable value, entrepreneurs must focus on transforming business models. In this respect, one of the most important sources of innovation in companies consists of digital technologies, which not only generate economic value, but also foster the optimization of resources, social inclusion and poverty reduction.

Both sustainability and digitalization are megatrends that are changing the way we do business today. The latest digital technologies –such as artificial intelligence, blockchain, edge computing or quantum communication– are already having an impact on business models in all industries. This implies endless opportunities to innovate in existing business models and to create new models.

However, combining digitalization and sustainability in entrepreneurship is not an easy task. Research has shown that SMEs struggle when endeavoring to integrate both strategies simultaneously due to their size and limited resources. In fact, SME managers are often forced to make trade-offs between the economic, social and environmental aspects of digitalization and sustainability.

Nevertheless, there is room to combine both strategies, since sustainability invites entrepreneurs and directors to manage the company's resources more carefully for regenerative growth, among other advantages. Recently, in the journal Sustainability (No. 15, 2023), we published a digital green innovation radar that can help entrepreneurs implement both trends simultaneously. This radar consists of a self-assessment tool that includes 12 dimensions to weigh business opportunities leveraging four anchor points: what, who, how and where.

By using this 360-degree radar, entrepreneurs can map their current strengths in innovation, resources and capabilities. This tool is important because it offers them a holistic vision and the capacity to systematically locate innovation, digitalization and sustainability opportunities. Thus, not only is it useful for innovating products or services, but it also provides new ways of creating value for customers, or in processes and operational matters.

To better understand how digital technologies create, deliver and capture value within sustainable entrepreneurship models, I published, together with my colleagues Odille Sánchez Domínguez and Miguel Ángel Rodríguez Montes, the article “The Role of Digital Technology within the Business Model of Sustainable Entrepreneurship” (Sustainability, 2023). Applying a comparative case study approach, we analyzed the adoption and use of digital technologies in the business models of ten sustainable ventures in Mexico. Our findings underscore the limitations of implementing these technologies in Global South countries.

What do we mean by sustainable entrepreneurship?

Sustainability is a concept that integrates economic, environmental and social purposes. In business, it translates into finding solutions or making decisions based on the relationship between profits, the planet and people (profit-planet-people).

For its part, sustainable entrepreneurship can be defined as the discovery, creation and exploitation of opportunities to create future goods and services that will sustain the natural environment and provide benefits for human development. Thus, sustainable business models seek to have a positive impact on the environment and communities, addressing issues such as climate change, waste elimination, poverty, or unequal access to education and employment, among others.

From digitalization to digital transformation

The main reason why entrepreneurs decide to go digital is to respond to changes in society. But while digitalization has to do with adding digital components to products or services, digital transformation goes even further: it is a strategic change that focuses on developing new business models, involving all levels of the company, as well as the way in which it delivers, creates and captures value. For example, entrepreneurs could innovate by introducing digital platforms or data-driven models that require a robust big data capability.

But the challenge of digital transformation also lies in applying these technologies to business models that already work analogically. Shifting to a digital business model requires the implementation of infrastructure, tools and systems –such as cloud computing, data analytics, digital communities or social networks– that offer communication, collaboration and IT capabilities to support innovation. Digital transformation gives entrepreneurs the opportunity to optimize resources, minimize environmental impacts, reduce industrial infrastructure and improve stakeholder engagement, while generating a competitive advantage with positive financial results.

The limitations of digitalization in the Global South

According to the findings of our research, entrepreneurs face significant difficulties in implementing digital technologies due to a lack of knowledge and available financial resources. A lack of resources prevents the acquisition of technology, particularly for production and manufacturing, as part of the value creation process. This leads companies to implement processes that are more manual or low-tech.

This situation is exacerbated in Mexico, where access to economic resources for entrepreneurs or investments in sustainability projects are fewer than in other regions of the world. Additionally, there is a lack of knowledge and capabilities regarding the application of digital technologies, especially tools for internal use that would make communication, collaboration and project management more efficient as part of the value creation process.

Contrary to what happens in other settings or geographies, the adoption of digital technologies for sustainability is not triggered by pressure from stakeholders. Our findings show that the entrepreneurs themselves are the main drivers of sustainability solutions, channeling their efforts towards stakeholders and making them aware of social and environmental value by using social networks and other digital platforms.

However, entrepreneurs are hampered from including some stakeholders. Although digital technologies promote connectivity, social inclusion and a greater stakeholder integration –an essential part of value creation activities– in practice, the marginalized populations that should be integrated into business models often lack the capabilities, infrastructure or financial means to work with digital technologies.

Cultural and socioeconomic contexts clearly differ from one country to another, and even within the same country, so sustainable entrepreneurs and their connection with digital technologies must also be contextualized. While these technologies can contribute to regional development, our research shows that there are important limitations that hinder their implementation in rural and remote areas of Mexico.

On a practical level, digital technologies are available, above all, as productivity tools for internal communication, collaboration and project management, offering significant advantages for value creation. One of the entrepreneur’s main tasks in this regard is to make an impression when communicating the product or service offered to a broad group of stakeholders, such as potential clients, the government, key partners or civil society. These communication and public relations efforts are achieved with digital technologies, which are more effective for value delivery than value creation, according to our research.

With respect to value creation, the greatest challenge is to integrate key partners. Cooperating with many partners, which often are economically and socially vulnerable, is difficult due to infrastructure limitations as well as their lack of capabilities and economic resources to employ and acquire these technologies.

In comparison with developed countries, since these limitations are accentuated in the Global South, entrepreneurs must be aware of the business ecosystem in which they operate before implementing digitalization and sustainability strategies. Context matters  for the adoption and satisfactory use of digital technologies.

The author is a research professor in Entrepreneurship and Innovation at EGADE Business School.