The Circular Economy: Four ways to designing circular business models

21 August 2017 11:35

The Circular Economy: Four ways to designing circular business models

There is a need for companies  to become more sustainable by taking part in the circular economy. We look at how retailers in Norway can “close the loop”, so that not more waste is created. For that, we propose some innovate business model ideas.

“Anyone who believes in indefinite growth in anything physical, on a physically finite planet, is either mad – or an economist”  Boulding (1973, p.248)

All along the evolution of the industrial economy, the fundamental concept of consumption has never changed: a linear model of resource consumption following a “take-make-dispose” pattern. Companies extract materials from the ground to manufacture products, which are purchased, consumed and later disposed of at the end of their life cycle. However, as raw material prices are increasing constantly and are more volatile, it becomes more attractive for companies to recover raw materials from users at the end-of-life stage.

Thus, as we argue, the traditional “take-make-dispose” consumption model cannot sustain in the long-run and companies need to adapt their business models to find more sustainable ways to create, deliver and capture value. Business models that decouple economic growth from raw material input, using a circular approach, will become essential in the near future. This idea has come to be known as the circular economy.

In the circular economy, resources are kept in use for as long as possible, by for example reusing or repairing products that would have been thrown away in a linear economy.  This can take several forms such as: 

  • On demand
  • Digitization
  • Product life-cycle extension / re-use
  • Product as service / Product Service Systems
  • Sharing economy and collaborative consumption

 

Figure: Reverse Retailing (Example of a circular business model) Figure: Reverse Retailing (Example of a circular business model)

This raises the question how companies can innovate their current business models to be part of the circular economy. In our paper, we illustrate how companies can implement circular business models in practice, providing examples from the do-it-yourself-construction retail industry in Norway - a traditional industry known for its wasteful “take-make-dispose” approach.

We propose four business model designs that offer different ways for companies to become more circular rooted in the ideas of product life extension, resource recovery and product-as-service logic. As we will discuss, while some of these practices can be added to the retailer's existing business model, others require a more radical change in the traditional business model. By means of our findings, we intend to encourage retailers to change their business models towards greater sustainability and eventually steer their suppliers and customers towards more sustainable production and consumption patterns.

This blog is based on our recent paper "Taking Part in the Circular Economy: Four Ways to Designing Circular Business Models".

Read the full paper at SSRN

 

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