Business Opportunities in a Circular Economy
Updated: Jun 9, 2020
A few weeks ago, I co-facilitated an online micro class about circular economies and how the impacts of the COVID-19 pandemic are shaping the worlds’ supply chains and creating opportunities to rethink your business resilience.
I have summarised the session here, highlighting the key theoretical aspects of circular economies, the key messages from our Q&A session with our guest speakers, and provided a brief outline of an assessment tool I used to develop a case study for a local business and the way it utilises circular economies to be more resilient.
The purpose of the theory is that society cannot sustain the current linear economy, which is based on taking natural resources to make products which then become waste. The alternative is to create circular economies where technological and biological materials are circulated around the economy for as long as possible, thereby reducing the consumption of natural resources, and the amount of waste which ends up in landfill.
Theory. Yawn. I hear you……don’t worry this is not boring, and the reality is, it is based on common sense good business practice. For those businesses that have a focus on their costs and efficiencies, you are probably already implementing it in some way.
I like to focus on the 3 key principles and 5 business models entailed in circular economy theory, because they are all actionable directly by businesses. The principles can become your critical business practices to create sustainable value;
Principle 1. Design out waste. Circular economies reveal and design out the negative impacts of economic activity that cause damage to human health and natural systems. When you do this within your business, you will be contributing to these social benefits, and building your sustainability reputation.
Research shows 4 in 5 Australian consumers will preferably select a sustainability focussed brand over one that is not.
When you design out waste in your supplies or products, it is an opportunity to reduce your input costs. The key to this principle is focus on DESIGN. If you’re a start-up business, then entrenching this practice into your product development will also be very beneficial to your value proposition.
Principle 2. Keep materials in use for as long as possible. A circular economy favours activities that preserve value in the form of energy, labour and materials. This means designing for durability, reuse, remanufacturing, and recycling to keep products, components, and materials circulating in the economy.
Embedding this into your business again builds a sustainability reputation, but may also allow you to reduce your raw material inputs if you reuse your own product components. Plan the logistics right and it is another opportunity to lower your input costs. This principle is most likely the one that could help you innovate new business models to make your business more resilient.
Principle 3. Regenerate natural systems. A circular economy avoids the use of non-renewable resources and preserves or enhances renewable ones, for instance by returning valuable nutrients to the soil to support regeneration, or using renewable energy as opposed to relying on fossil fuels.
Many businesses find this principle the hardest to act on, without fear that it will actually increase costs. Our advice is that research is your best friend when analysing your business ability to contribute to the regeneration of natural systems – there are a lot of amazing ideas out there and all you need to do is connect with the right supplier, customer or neighbour to find an opportunity to make it happen.
It often leads to resilience within your local business community and cascading value, which you can leverage at a different time when opportunities present – to illustrate a real example of this listen to the Brouhaha Brewery case study section in the micro class video (timestamp 49:30).
Once you are practicing the 3 key principles in your business, you are well placed to then consider which of the 5 main business models you can integrate into your existing or start-up business plan.
Business Model 1. Circular Supplies. The intent of this model means that your business is actively replacing traditional material inputs for your product and replacing them with bio-based, renewable or recovered materials. It leads to reduced demand for virgin material in the long run, and again will likely build your sustainability reputation with consumers. Once logistics chains are mature for the circular supplies, it is also likely to represent a cost saving opportunity.
Business Model 2. Resource Recovery. Here, your business leverages technology to recover and reuse resource outputs, eliminate material leakage and maximise the economic value of that material. This could be as simple as changing the way you construct your lease product so it can be taken apart at end of life and the various components on sold to off-take partners for reuse in the construction of different products. You can potentially create a new revenue stream with this model.
Business Model 3. Product Life Extension. This model rethinks and redesigns your products so that their life cycle is extended and they are economically useful for longer. Again, it creates opportunity to change how you generate revenue – instead of selling to a customer, you lease it. The longer it lasts, the more leasing revenue you can generate.
Business Model 4. Sharing Platforms. A personal favourite of mine!! This model focusses on sharing of under-utilised products. This reduces demand for new products and their embedded raw materials. It can also potentially reduce asset capital costs for your business, or give access to more productive or effective equipment you potentially could not afford normally.
Business Model 5. Product as a Service. This model seems obvious, but with innovation you can potentially create vastly different revenue streams for your business. A classic example is Schipol Group, Cofely and Royal Philips entering into a collaboration for new lighting in terminal buildings at Amsterdam Airport Schipol. Cofey and Philips, design, install, maintain and replace the lighting infrastructure, and actually sell the light generated as a service to Schipol. The benefit is that this model encourages product life extension and therefore reduces raw material usage in the long run, as well as providing better lighting experiences for customers of the airport.
So, there you have it, a snapshot of circular economy theory. There is so much more to the topic, if you want to learn more try these books mentioned during the micro class by our guest speakers.
Yes, in theory it sounds good, but how is it actually playing out during the COVID-19 pandemic? We asked several questions around this theme to our guest speakers, and here are the key take away messages I found in their responses.
Key Lesson 1. Shifting from a linear economy to a circular economy is a complex challenge requiring a systems approach and collaborative leadership. Taking a design approach can help businesses implement circular economy practices in achievable steps. Focus on what you can do in your business and in your local community, and you will see benefits.
Key Lesson 2. When leading change towards circular economies, businesses and individuals should focus on harnessing the power of the collective. Sharing platforms are a great example of collectiveness helping individual businesses (i.e. with lowering asset capital costs)
Key Lesson 3. Interdependent relationships between suppliers, customers and consumers are critical. When these relationships are close, personal and high in communication and information sharing, they are more effective at finding cascading value loops benefiting their communities. When cascading value loops are established in your community, the local economy, and your business, become more resilient.
Key Lesson 4. Finally, if you are thinking about making a change towards making your business or community more circular, don’t wait for permission, act now! As we discussed in the theory above, many circular economy practices are common sense and will ultimately help your business be more sustainable and profitable if nothing else.
If you are still unsure what action your business or network can take, then the best place to start may be just assessing what you currently do now. everfocus has developed an integrated assessment tool which gives a visual output of which circular economy principles and models you have in your existing business, and then highlighting which opportunities you have to become more circular and resilient. We used this assessment to create the Brouhaha case study.
The important part of the assessment is the approach we use to understand the relationships with suppliers and customers you have, that then inform issues/tensions and opportunities you can address to create new approaches and practices in your business. If you’re interested in completing an opportunity assessment of your business, organisation or start-up, contact us by clicking on the diagram with your questions.
So that’s our summary; the micro class is now on our YouTube channel if you want to watch the full 1.5 hour micro class.
Good luck with achieving your goals of becoming circular!