Business models reimagined

Unlocking the commercial potentials of circularity

Although regulatory and stakeholder pressures are forcing businesses to move on the circularity agenda from the outside, one significant upside of transitioning towards circular business models is the ability to link environmental value creation to financial value creation. While companies seeking to cut carbon emissions sometimes encounter significant costs and investments, the ability to apply circular design principles seems to be more easily linked to promising commercial potential. And after all, going more circular inherently, by definition, often means cutting emissions.

Looking across the value chain and the lifetime of solutions, four distinct levers to improve the level of circularity stand out.

Firstly, rethinking how we use input materials and resources in solutions can help mitigate inefficient and expensive design as well as limit negative environmental impact. Designing products and components for durability, modularity and flexibility will enable lifetime extension, and designing solutions based on recycled and recyclable inputs can lower cost levels across lifecycle stages.

Secondly, innovative business model design patterns can be applied to shift from a product-centric to a solution-oriented mindset where you sell the benefits rather than the functionality of your value proposition. That means offering products as a service or providing benefits delivered through advanced contracting such as paying for a specific performance. Alternatively, business models can be designed to maximise the usage of assets or resources through sharing economy principles or even platform-based services or car-sharing schemes. On top of that, a switch to a service-based business model enables the creation of sticky add-on services on the platform-based services connecting multiple players across an ecosystem. The net effect of all design patterns is higher utilisation rates of scarce resources as well as increased cost efficiency and reduction of negative impacts.

Thirdly, expanding the lifetime of solutions while in use will both unlock commercial potential and lower the need for extracting new resources. Building on the service-based business model, a range of complementary service offerings are worth considering, such as providing continuous performance upgrades through adding new features, advanced maintenance and repair services as well as refurbishment and even reselling services to both expand lifetime and provide a second life for used solutions. All services can be fully digitally supported while also building the ability to establish close customer relations and interactions.

Fourthly, recovering valuable resources at the end of a product’s life is key to generating cyclical flows where materials keep their status as resources instead of ending up in landfills or incineration. Again, the commercial potential arises when valuable or rare materials can be recovered and reused in either your own products in closed loops or sold in markets for recycled materials in open loops. Moreover, innovative partnerships and entirely new value chains can be shaped by launching take-back programmes that conserve resources through collection, sorting, processing and reselling fractions.

Scaling solutions beyond own operations

Evidently, the range of commercial opportunity spaces is abundant when looking into circular business potentials, and the ability to sense, select and seize the opportunities strategically is key to not losing track. However, taking a step back and looking at the bigger picture, the most profound potential might emerge when multiple companies work together within and across value chains and networks.

That would entail moving the strategic agenda from becoming a fully circular company to spearheading a much larger transformation across ecosystems and setting the standard across industries. And, by the way, almost every step of that journey would have the pleasant side effect of significantly reducing carbon emissions along the way, linking circularity nicely with our common journey towards net zero emissions.

Questions worth considering

Have you truly moved beyond carbon tunnel vision and launched an equally ambitious agenda tackling a wider range of material environmental issues?

Where do the biggest commercial opportunities and upsides emerge when switching from linear towards circular business model design principles?

What would it take to fundamentally reshape the way your industry is working by collaborating vertically and horizontally to enhance biodiversity and save valuable materials at scale?