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Circular Economy

How is a circular business model created?

The changes necessary for creating a more circular system require a fundamental system change.  Business Model Innovation contributes tot his change because the purpose of firms is re- conceptualized, and the perception of value is redefined (Bocken, Short, Rana & Evans. 2014). Business models can link radical and systemic sustainable innovations with business strategies at the operational level (Boons, Montalvo, Quist, & Wagner, 2013), by clearly structuring the application of the principeles of the circualr economy (Mentink, 2014). How this works is explained below by discussing what a businesmodel is, what type of circualr businesmodels have been identified and how a business can design their own circualr busines model.

Business models

A business model can be described as “the blueprint of a firm’s business logic” (Lüdeke-freund, 2009) and describes the rationale of how companies create, deliver and capture value. It is not a strategy but a tool which gives insight in how a firm does business, and can be used for analysis, comparison, performance assessment, management, communication, and innovation (Osterwalder, Pigneur, & Tucci. 2005; Bocken, Short, Rana & Evans. 2014). A business model shows assumptions on customers, revenue streams, costs, competitors and user needs, and shows what business logic is used (Teece, 2010).

A widely accepted way to structure a business model has been developed by Osterwalder et. al (2005), who identified nine building blocks that describe how a business creates value. By filling in these nine buildingblocks of the socalled ‘business modle canvas’ essential parts op a busines model are defined and the viability and completenes can be determined (see figure 1).

bmcanvas

Figure 1: the Business model canvas Osterwalder, Pigneur, & Tucci. 2005

Sustainble business models for a circular economy

There is a wide variety of overviews of sustainbale businesmodels available. These overviews can be used as inspiration when business are looking for circualr oportunities and are ready to renew their current busienss model.

Promising roles in the supply chain

When circular economy grows, the demand for organizations that facilitate the circulation of materials increases. According to Accenture these five business models offer opportunities:

  • Circular Supplies: Provide renewable energy, bio based- or fully recyclable input material to replace single-lifecycle inputs.
  • Resource Recovery: Recover useful resources/energy out of disposed products or by-products.
  • Product Life Extension: Extend working lifecycle of products and components by repairing, upgrading and reselling.
  • Sharing Platforms: Enable increased utilization rate of products by making possible shared use/access/ownership.
  • Product as a Service: Offer product access and retain ownership to internalise benefits of circular resource productivity.

Accenture, 2014, p.12-15

Business model archetypes

Based on literature study, Nancy Bocken and Collegues have identified that sustainble busines models can be categorized in eight different business model archetypes.  These archetypes are groupes based on the extent to which the focus of the busines model is based on a more technical, social or organisational approach of sustainability. As shown in figure x, within each business model archetype, different strategies are identified. Bocken, Short, Rana & Evans. 2014

BM Archetypes

Figure 2: Business model Archetypes Bocken, Short, Rana & Evans. 2014

Busines models based on circular principles

Based on the six powers that enable value creation 

in a circular economy, and observaties in practice, IMSA has identified 19 existing businessmodels, which are:

  1. Short cycle
    1. Pay per Use – One time payment to use product or service.
    2. Repair – Product life extension by repair services.
    3. Waste reduction – Reduce waste in the production process.
    4. Sharing platforms – Products and services are shared among consumers.
    5. Progressive purchase – Pay periodically small amounts efore purchase.
  2. Long Cycle
    1. Performance baed contracting – Long term contract and responsibility with producer.
    2. Take back management – Incentive to ensure product gets back to producer.
    3. Next life sales – Product gets a next life.
    4. Refurbisch & Resell – Product gest a next life after adjustments.
  3. Cascades
    1. Upcycle – Materials are reused and its value is upgraded.
    2. Recylcle & repurpose – materias are cascaded and reused, recyceld or disposed.
    3. Collaborative production – Coopertioan in the production value chain leading to closing material loops.
  4. Pure cycles
    1. Cradle ro cradle – product redesign to 100% closed material loops.
    2. Cicular sourcing – Only sourcing circular products or materials.
  5. Dematerialized services
    1. Physical to virtual – shifting physical activity to cirtual
    2. Subscription based rental – against low periodic fee consumers can use a product or service
  6. Produce on demand
    1. Produce on order – Only producing when demand is present
    2. 3D printing – Using 3D printing to produce what is needed
    3. Customer vote (design) making customers vote what product to make.

Creating a circular business model

In order to apply the suggested circular business models, business should be able to identify what type of businessmodel fits best with their organisatieon and will be most promising. A circular business model scan can be used to identify what opportunities are present fort he current business, and The Value Hill structures all stadia where possible opportunities for busienssmodel innovation are present.

Circular business model scan

IMSA proposes to use a circular business model scan to identify which business model fits with the current business. Such a scan investigates where opportunities for circualr innovation can be found, and what circular principles can be used to start creating a more circualr business model.

Subsequently, a roadmap to implement the outcomes of the first scan should be created. Such a roadmap should be based on an indepth market analyses, a company vision review and a stakeholder analysis. Renswoude, van , Wolde, ten & Joustra. 2015., pp. 10–11)

The Value Hill

The Value hill is a circular business strategy tool that provides companies with a tool to position their business in a circular context and to develop future strategies for a circular economy. Additionally, the Value Hill provides oversight in essential circular partners and collaborations in a circular value network (see figure 3).

In the value hill, different stages of materials and products flowing through the economy are shown. Through different processes, materials gain value as they go up hill, they have the highest value when they are in use at the top of the hill, and slowly loose value when they go down hill. In a circular economy the aim is to feed a material, product or part back in to a phase with a higher value in order to retain value.

The  Value hill can be used by businesses to identify circlar opportunities for new business models, by identifying four categoeries, in which circualr business model scan be applied (see figure 3):

  • Circular uphill development (Pre-use)
  • Circular Peak use (In-Use)
  • Circular downhill recovery (Post-use)
  • Circualr network support (collaboration between partners in the value chain)

For each phase are different business models available (see figure 3). The tool can be used by following a four step tool:

  1. Positioning current business model onto the Value Hill: to what category does the current business belong?
  2. Positioning value chain partners on the Value Hill: to what category do current value chain partners belong?
  3. Identify gaps and opportunities in the circular value network: what category and linkages are still missing?
  4. Formulate future circular business strategy: select appropriate businessmdoels to increase impact and fill in gaps.

ValueHill_BM

Figure 3: The Value Hill Achterberg, Hinfelaar, & Bocken. 2016