Five business models singled out as being ‘circular economy ready’
Five business models which organisations can adopt to attain circular economy 'first mover advantage' have been identified as demand grows for practical application in this field.
Outsourcing and technology firm Accenture has examined several companies who are demonstrating early leadership in circularity, and drawn up a series of models based on different configurations: circular inputs; output recovery; enhanced differentiation; sharing platform; product as a service.
The circular inputs model revolves around supplying renewable, recyclable or biodegradable resource inputs, allowing an organisation to phase out the use of scarce resources, cut waste, and remove inefficiencies. In the chemicals industry, companies such as DSM and Novozymes are starting to shift towards delivering bio-based inputs in this way.
The output recovery model facilitates ‘resource return’ chains by transforming waste into a resource through recycling services that can help eliminate material leakage and maximise economic value of these material return flows. Companies such as Coca-Cola Enterprises, which operate closed loop processes, are examples of this.
The enhanced differentiation model helps organisations realise value by extending the life of products and assets with carefully targeted repairing, upgrading, refurbishing or remarketing. BMW has capitalised on this model through the manufacture of component parts that can refurbished or reconditioned at end of use.
The sharing platform model enables users to share overcapacity or underutilisation, thereby increasing productivity and user value creation. Zipcar, AirBnB and Yerdle are all pioneering work in this space.
Finally the product as a service model facilitates the use of products by multiple customers through a lease or pay-per-use agreement, shifting the incentive from volume to performance. Philips’ recent offering of ‘street lighting as a service’ to governments and cities illustrates
According to Accenture’s managing director for strategy practice & sustainability services in the Asia Pacific Peter Lacy, the models are appealing to business not least because they offer good USP (unique selling point).
“Practically all of the CEOs we’ve spoken to about the circular economy agree that cutting material costs for them and their customers and managing future risk is a major driver … but they have also adopted circular business models because of the potential for differentiation,” he said.
He added: “The great thing about circular economy thinking is that it runs with the grain of how businesses think and operate. The next step will be to speed up and scale up. Most of the first movers and innovators are still relatively small, albeit disruptive, players on the margins of big markets. The bigger players are still, on the whole, experimenting.”
Lacy also believes that in offering such models, companies will have to focus more on after-sales service to manage product lifecycles and maximise their retained value.