Introduction
Whenever I talk with sustainability professionals I regularly hear people saying that what we really need is new technology to help us transform existing industries to be more sustainable because we usually associate an industry’s transformation with the adoption of a new technology or innovation.
But although new technologies are often major factors, they have never transformed an industry on their own.
What does achieve such a transformation is a business model that can link a new technology to an emerging market need.
Sustainable business model innovation allows for delivery of large scale sustainability outcomes without the need for new technology development or high risk R&D.
Consider the following:
- Facebook is the world’s largest media company but creates no content;
- Bitcoin is the world’s largest bank, with no actual cash;
- AirBNB is the world’s largest accommodation provider yet owns no real estate;
- AliBaba is world’s most valuable retailer but has no inventory of its own; and
- Uber is the world’s largest taxi company yet it owns no vehicles.
What allows these companies to achieve such large-scale transformation is not a new technology or innovation, it is the business models upon which they are built.
A new business model combined with existing technologies, products or services can bring significant competitive advantages.
For sustainability solutions the right business model can deliver impact at scale.
Circular Business Models
Linear business models are based on the following logic: take natural resources, make products for consumers that eventually become waste.
Circular business models on the other hand contribute to a circular economy and are designed to achieve three key things.
- They Design out waste and pollution
- They seek to keep products and materials in use
- They aim to regenerate natural systems
A circular business model articulates the logic of how an organisation creates, delivers, and captures value to its broader range of stakeholders while minimising ecological and social costs.
Now there are many ideas for the design of business models for the circular economy that have been put forward. Some are based on case studies, others derived from theory – one study even calculated 4,445,280 combinations of circular business models!
But in practice we have found that you can categorise circular business models into six broad types.
#1 – Circular Supply Chains
The first is business models based around circular supply chains. These types of models seek to close the loop on material flows.
Renewable, recycled, or highly recyclable inputs are used in production processes – enabling partial or total elimination of waste and pollution. Waste becomes an asset, not a liability that you pay to dispose of.
In these models products do not become end-of-life instead they become the end-of-current-usage loop.
Brewdog Beer - Circular Supply Chain Example
A new Australian-made, carbon negative beer made with unsold bread from Coles supermarkets is rising to the growing customer demand for climate-positive liquor options.
Lost Lager is a collaboration between Coles Liquor and BrewDog Australia, the Brisbane-based operation of the Scottish carbon negative brewer.
The beer’s packaging is 99 percent plastic-free, and any emissions BrewDog is unable to avoid in production are ‘double offset’ through tree planting schemes around the world.
Each new batch of Lost Lager uses about 30 loaves of unsold bread in the brewing process, which it collects from the local Coles supermarket.
The bread is collected, taken back to the brewery, ripped up and added into the malt.
Brewdog Beer has struck a deal to sell Lost Lager, with a 4.5 per cent alcohol content, in the First Choice liquor superstores and Liquorland stores owned by Coles.
#2 – Sharing Economy
These business models maximise how idle assets are used across a community while providing customers with affordable and convenient access to products and services.
AirBNB is the world’s largest accommodation provider even though it doesn’t own any real estate because it is unable to unlock value from idle assets like that spare bedroom.
This model also includes sharing industrial assets like a conveyor belt, forklift, machinery and warehouses.
Access to an asset no longer requires buying or renting from traditional suppliers but is instead can be provided by individual people and companies.
FLOOW2 - Sharing Economy Example
FLOOW2 is the first business-to-business sharing marketplace that enables companies and institutions to share overcapacity of equipment, knowledge and skills of personnel.
Users can register on the platform for free and participants pay a subscription to advertise their equipment on the platform, providing a revenue stream for FLOOW2.
FLOOW2 facilitates the sharing of overcapacity of business equipment and the skills & knowledge of personnel that are under-utilised by making it transparent and tradable on their platform. The platform is currently operational worldwide with a rapid global expansion plan envisaged.
There are many existing business models based on collaborative consumption, however they primarily focus on consumers and peer-to-peer sharing.
Meanwhile, FLOOW2 focuses on the sharing activities between companies in a huge range of sectors, from construction to healthcare.
#3 – Product as a Service
Next we have products-as-a-service business models where the customer purchases a service for a limited time while the provider maintains ownership of the product and remains incentivized for the product’s ongoing maintenance, durability, upgrade, and treatment at the end of its use.
Circular PSS business models exist in a wide range of industries including lighting as a service, carpet as a service and even jet engines as a service!
Michelin - Product as a Service Example
Michelin tyres was facing strong competition in their business with haulage companies from low cost competitors. Michelin believed they had a superior technology but were not able to capture the value from it simply by competing on price. At the same time climate change regulation was impacting Michelin and their customers.
Michelin created a new product with a redesigned business model to give away their tires for free but charged their customers per kilometre. They installed computer chips in the tyres to measure performance such as distance and maintenance requirements.
They bundled this service with a range of professional services to help their customers reduce fuel consumption and optimise vehicle performance. This allowed Michelin and its customers to extract the maximum value from their products.
Their superior technology meant they could get more kilometres per tyre compared with low cost competitors and therefore because they were charging per kilometre they could also maximise revenue per tyre.
Michelin was incentivised to produce less tyres because the more kilometres they got out of a tyre the more revenue they could generate per tyre which meant less material usage, lower supply chain risks, and reduced carbon emissions (not to mention the reduced carbon emission for their customers due to fuel efficiency improvements).
They were also now able to take a product stewardship role and recover the used tyres for recycling and re-entry into their manufacturing process.
Michelin were also able to create new customer relationship pathways by creating a direct relationship, stronger intimacy and deeper roots within their customer’s business.
The community were beneficiaries of this business model through less waste to landfill and reduced air pollution.
Michelin were also able to support the outcomes of a range of the UN Sustainable Development Goals.
#4 – Virtualisation
Virtualisation is a type of circular business model that is about replacing a physical product with a virtual or digital solution. Do you remember when you had to go to the store to purchase a physical CD to listen to your favourite music – today you can jump on Spotify and have millions of songs at your fingertips.
Netflix - Virtualisation Example
Not so long ago if you wanted to watch a Blockbuster movie at home you had to jump in the car and drive down to the local video rental store, rent a DVD, take it home, watch the movie and then take it back again the next day.
Netflix started out initially aiming to disrupt this industry by providing a DVD rental service where they would post the DVD movies to your home.
They then transitioned to a subscription model and video streaming via the internet.
They created a streaming technology and platform, and a new channel to deliver the value proposition to their customers and a new revenue model to go with it.
This transformation eliminated the need to manufacture almost 2 billion DVD’s.
Between 2005 and 2009 there was an average of 2 billion DVDs sold ever year.
In 2022 this was down to just 300 million DVDs worldwide.
#5 – Resource Recovery
Next we have resource recovery models that focus on the end stages of the usage cycle, namely the recovery of embedded materials, energy, and resources from products at the end of use that are no longer functional in their current application.
Current recycling practice often results in the quality of the materials being degraded so these models seek to ensure resources are recovered with the highest possible quality.
Terracycle - Resource Recovery and Product Use Extension Example
TerraCycle is a global leader in the collection and recycling of pre- and post-consumer waste that is generally incinerated or landfilled. Operating national programmes in 21 countries, TerraCycle develops business models that incentivize manufacturers, retailers and end-users to pay for the recycling of products and packaging they manufacture, sell or use.
By creating turnkey and affordable recycling options, TerraCycle enables these parties to move from the linear to circular economy. Its programmes engage tens of millions of people, are a constant presence in the media, and bring in as partners many of the largest companies in the world.
As an example Terracycle worked with major beauty brand Garnier to design a competition for schools to collect used beauty products which were then recycled into a playground.
Park Lake State School on the Gold Coast recycled 14,700 out of the 145,000 units of beauty products that were otherwise headed for the landfill, emerging as the top collector after two months of waste collection and winner of the Garnier Recycled Playground Competition.
Working in partnership with five local recycling companies, the competition ensured that the empty beauty products collected by participating schools were cleaned, shredded, and melted down into hard plastic, before being remoulded to build the new playground, in line with TerraCycle’s goal of creating recycled materials that can serve as sustainable alternatives to plastic.
In 2019 Terracycle added a product use extension element to their business model whenthey launched Loop which operates a global reverse supply chain – collecting used packaging from consumers and retailers, enabling deposit return, sorting and storing, and finally returning hygienically cleaned packaging to manufacturers for refill.
Simply put, Loop brings back the old “milkman model,” where products are delivered to customers at the same time empties are picked up, washed, refilled and restocked for delivery to another customer. The customer gets the product but the company owns the package.
#6 – Product Use Extension
Finally we have “Product use extension” models where products are designed for repairability, upgradability, reusability, ease of disassembly, reconditioning, and recyclability of all components.
Patagonia - Product Use Extension Example
Patagonia is an outdoor clothing brand headquartered in the United States. In autumn 2015, the company started its Worn Wear program under the motto “Repair is a Radical Act,” an initiative started by CEO Rose Marcario. The program aims to explain to customers the value of preserving clothes by repairing them instead of buying new. Patagonia’s environmentally friendly campaign aims to counter fast fashion trends and increasing demand for new clothes, by encouraging quality standards that produce clothes designed to last.
The problem is that many clothing items produced today are barely worn before they are discarded, posing a significant burden on the world’s resources. In order to balance out the environmental and social resources needed to create garments, clothes need to be used more and disposed of less. However as clothes are worn for longer, and succumb to natural wear and tear, consumers are less inclined to repair them (either by themselves or using a service) due to lack of sewing skills and low prices of new clothing. Today, it is often more affordable for consumers to buy new than repair old.
To prevent clothing being discarded before their lifespan was up, Patagonia’s Worn Wear programme extends producer responsibility beyond the purchase phase, and asks their consumers to join them in mutual responsibility to take care of their clothes.
The repair programme encourages consumers to attempt repairs themselves, through a partnership with iFixit, a platform dedicated to free repair guides. There are over 100 Patagonia-specific guides on the platform, ranging from darning a hole to replacing a zip. If the repair is too complex, the customer can take their item to their nearest Patagonia store, or send it in to Patagonia’s repair facility, one of the largest in North America.
The programme also includes Worn Wear repair tours, where specially equipped vans carrying sewing machines and notions drive around to various Patagonia stores, where customers can bring in their broken garments and have them fixed for free by Patagonia repair ambassadors. Patagonia emphasises that all brands of clothing can be brought to be repaired, in order to strengthen product longevity.
415,174 Patagonia items have been repaired at Patagonia repair centres and roving tours in North America since 2005, with the repair centre mending up to 50,000 garments a year. As of March 2021, the Patagonia Worn Wear vans have visited 1354 locations in 14 countries, spanning North and South America, Europe, Asia, and Oceania.
Conclusion
The shift from linear business models to circular business models represents a fundamental transformation in the way we approach economic and environmental sustainability. As we’ve explored in this article, circular business models are guided by three core principles: designing out waste and pollution, keeping products and materials in use, and regenerating natural systems. These principles not only pave the way for more responsible and eco-friendly business practices but also hold the potential to reshape industries and economies for the better.
The diversity of ideas and approaches within circular business models is staggering, with countless combinations and innovations emerging from both case studies and theoretical concepts. Amid this diversity, we have identified six broad categories that capture the essence of circular business models: circular supply chains, the sharing economy, products-as-a-service, virtualization, resource recovery, and product use extension. Each of these models presents a unique pathway toward achieving circularity, allowing businesses to align profit with environmental and social responsibility.
As we stand at the crossroads of economic and environmental challenges, the adoption of circular business models becomes not just a choice but a necessity. Embracing circularity can reduce our reliance on finite resources, minimise waste and pollution, and contribute to the restoration of ecosystems. Circular business models do more than just sustain profitability; they enable organisations to thrive in a world increasingly conscious of its ecological footprint.
In the coming years, we can expect to see these circular models continue to evolve and gain traction across various industries. They offer a beacon of hope for a future where businesses not only prosper but also actively contribute to the well-being of our planet and its inhabitants. By incorporating circular thinking into their strategies, companies can lead the way toward a more sustainable and prosperous world, one business model at a time.
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