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Circular Business Model

How companies can enable circular economy

It is well known that most companies today still follow the traditional linear economy pattern (“take-make-use-dispose” scheme). More recently, however, some of them are embracing new strategies and tools in order to reduce their environmental footprints. In this article, we take a look at the core principles of circular economy and discuss what we mean by “circular business model“.

Circular Economy (in a nutshell)

Sure, plenty of resources discussing and analyzing the framework of circular economy (CE) are already available across the Internet. So you’ll find hundreds of articles digging into every single aspect of this topic. Having said that, it’s still important to mention its key principles here too.

sustainable business models, sustainable social enterprises

In a nutshell, CE encourages individuals, organizations and institutions to re-think the way they design, produce, use and deliver stuff. According to the work done by Ellen MacArthur Foundation, circular economy builds upon three core principles: (1) eliminating (or, at least, dramatically reducing) waste and pollution; (2) creating “products” that can be reused, repaired, or remanufactured; (3) regenerating natural resources.

Companies are now beginning to take on this challenge, experimenting ways to embed such principles into their business models.

Circular Business Model

And this is how we get to “circular business models“.

In its most succinct definition, a circular business model could be seen as any kind of business model that embeds circularity to both strategic and operational levels. So, product models, solution models, as well as matchmaking models or multi-sided ones could become “circular” as long they shift from linear economy patterns to more circular-oriented ones.

In order to “go circular”, organizations can choose to modify one or more layers of their business models. Not just value creation (namely, everything that’s related to the value proposition) then, but also value delivery and value capture.

According to BMI Lab, there are at least 38 circular patterns companies could choose from to concretely implement circular principles. Some of them include:

  1. Value Creation = increased product longevity, increased product functionalities; providing repair & maintenance, biodegradability;
  2. Value Delivery = using renewables and eco-materials, recovering energy, re-using waste (as an input), localizing, producing only on demand;
  3. Value Capture = pay-per-use, dynamic pricing, subscription or rent-instead-of-buy.

Needless to say, most of these patterns tend to affect multiple (if not all) layers of a business model. For instance, when a company chooses to provide repair and maintenance (Value Creation) to extend the use of its end products, it may also need a pool of new resources and capabilities (Value Delivery), with implications for its cost structure (Value Capture). Again, shifting towards a subscription-based revenue model (Value Capture) might determine new key activities (Value Delivery) or affect the way customers perceive the value proposition (Value Creation).

So, before implementing circular patterns, it is necessary for firms to carefully assess every change and modification needed for the whole business model. The good new is: since there’s no one-size-fits-all solution, companies can experiment and innovate in many different ways.

And what about the ecosystem?

No man is an island“, as Donne would say. The same goes for businesses.

As a matter of fact, to make circular strategies and patterns truly effective, every company must address the ecosystem it operates in. Identifying key partners, ensuring their commitment, formulating shared objectives, are among the most critical steps to make change actually happen. Without that, any ultimate impact goal is unlikely to be reached. Thus, any business willing to “go circular” should first understand how its ecosystem needs to change to truly foster circularity, and then take action accordingly.

Conclusion

In this article, we got a first glimpse of core concepts and ideas behind circular business models.

As seen, companies can combine circular strategies and patterns in diverse ways, applying them to different layers of their BMs. Some of them are doing it successfully, such as RecyclePoints which we analyzed in this article.

This said, no matter what the geography or industry, companies willing to concretely implement such changes must be capable of designing and orchestrating partners, as well as the broader ecosystems surrounding them. Then, and only then, CE will be more likely to truly happen.


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