KNOWLEDGE MAP Back to overview

Circular Economy

How is value created in a circular economy?

Within a circular economy several new opportunities to create value are found, on which new business models can be based. For this purpose, it is necessary to redefine the concept of value creation, to approach value creation and to use the power of cycles.

Redefine value creation

Although making a profit is an important goal of companies, it disregards the opportunity to embrace sustainability. Conventional business models do not capture the ‘value’ of social and environmental benefits, nor do they encourage the development of business models that focus on sustainability issues, even though this may lead to new business opportunities. According to research by Jan Jonker there are, besides making profit, five other principles that can create value for the success of a business model:

  • Multiple value creation;
  • Search Logic;
  • Make strategic choices;
  • Using Networks; and
  • Organize Cooperative.
Jonker & Dentchev, 2013

Circular value

In order to capture circular value, it is important to consider the entire value chain. This includes the value proposition (the product), the management of the value chain, the interaction with the user and the business model. Opportunities for circular business lie in the threat of a linear economy (supply of raw materials, increasing government regulations) and social trends (circular tender, multiple value-creation, co-creation of value propositions).

OPAi, & MVO Nederland, 2004, p.31-33

As a result of circular thinking circular value can be created in four areas:

  • Raw materials are permanently re-used, and are not just more efficient, but infinite (eg renewable energy).
  • Liquid markets emerged, in which products are used optimally by the exchange between users (for example: the sharing economy).
  • Products are designed to have a long life cycle (eg the shift from product to performance or services).
  • Value chains are linked, so no waste is produced in manufacturing processes (eg recycling, new material flows).

Accenture, 2014, p.6

The power of cycles

Finally, within the cycles of a circular economy there are four ways to add value to a product. By focusing on the following four points value that can be extracted from a product or material can be maximized:

  1. The strength of the inner circle. Due to maintenance, repair and adaptation of existing products and services, products can be kept in use longer, before they should be taken back for recycling.
  2. The strength of the long cycle. Extending the use and life time of existing products and processes.
  3. The power of cascades. Creating new combinations of raw materials and product components and sale and purchase of upgraded waste streams;
  4. The power of pure circles. 100% use of pure materials.

Ellen Macarthur Foundation, 2013a p.33-36

Two additional forces are added by IMSA:

  1. The power of dematerialization: The shift from physical to virtual goods and services, which leads to increase in production and decrease material usage.
  2. The power of on demand production: Produce only when there is demand.

Renswoude, van , Wolde, ten & Joustra. 2015., pp. 10-11