Stepping Towards the Circular Economy: Business Model Innovation

Business model innovation is the essential first step in going circular as a corporate entity. A business must review the core purpose of their operations, which includes redefining value and the way they create it. However, multiple barriers stand in the way of creating such a viable circular business case, such as that there is a lack of knowledge on what options are available to be realized. Hence, this article outlines the various circular alternates to existing business models that companies may innovate, as well as how the change towards these business models may be initiated.

What are circular business models?

Accenture, a multinational consultancy service provider, defined several business models that facilitate the development of the circular economy. These business models center upon either recovering and redistributing resources or extending the user life of the finished products.

Five circular business models and where they fit in the product life cycle. Source: Accenture
Five circular business models and where they fit in the product life cycle. Source: Accenture 2014

The cycle depicted above demonstrates where in the product life cycle each of the five circular business models fit. These are Circular Supplies, Resource Recovery, Product Life Extension, Sharing Platforms, and Product as a Service.

Circular Supplies inject materials into the cycle in the stage of Product Design and Procurement. The difference between this business and any other supplier is that these Circular Suppliers provide ‘second-hand,’ renewable, or recyclable materials. These suppliers may also take the form of or collaborate with institutions of Resource Recovery, which recover materials or energy from used, disposed, or by-products. As such, these materials can be retrieved at both the beginning phase (Manufacturing) and end phase (End of Life Disposal, Reverse Logistics) of the product life.

Product Life Extension can be done in multiple ways: entrepreneurs may shape their business models around repairing, upgrading, and reselling products. Alternately, Product as a Service business models can offer their products to customers as a service rather than a product – leasing rather than selling the item – and retaining ownership over it in order to ensure the product’s circularity through repair, replacement, and reuse of its parts once at the end of its life cycle. Finally, Sharing Platforms increase the product’s utilization rate by enabling its use, access, or ownership to be shared among multiple people rather than just one. Such an example of a sharing platform is Turo, an app which allows people to share their car with others when not in use by the owner. Such a product sharing platform eases the access to cars and as a result reduces the need for more cars to be bought and ultimately materials to be mined for their manufacture.

How should I create my circular business model?

So now that several opportunities for circular business models has been established, the question that remains is ‘how?’ The IMSA developed a circular business model scan which evaluates a business’s existing processes, value chain, and business model in order to identify the opportunities available for that particular business to transform their business model. After redefining your business model and value chain, an essential next step to implementing a circular business model is collaboration.

The book Circular Business: Collaborate and Circulate outlines the three different areas in which collaboration should be achieved: collaboration within the organization, between different organizations, and with consumers. Collaboration within an organization is needed in the Manufacturing phase of product development, for example between designers, waste processors, and producers when designing for the disassembly of the product. Circular Suppliers and Resource Recovery are needed for collaboration between organizations, and collaboration with consumers is needed during Product Use and End of Life Disposal in order to maximize product use and recycling and minimize waste leakage. Initiating collaboration is by no means the only step towards reshaping your business processes towards circularity, but nonetheless the connections must be in place in order for the wheels to turn.

If your business follows an innovative circular business model, share it with the members of the community below to get the circular economy flowing!

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