Circular business models are an emerging field – not only in research but also in practice. As linear supply chain patterns prevailed in the past, it is important to understand the benefits and steps of implementation. The five business models developed by Accenture are still prevailing and can be clustered as follows: circular supply, resource recovery, product life extension, sharing platform, and product-service system (PSS).
What is a business model of a company?
Business model and business concept are two terms that have been used interchangeably in the past, describing the “way of doing business” (DaSilva & Trkman, 2014).
Recently, sustainable business model patterns have been developed, which provide an overarching framework and inspiration for business models in the circular economy domain (Dentchev et al., 2018; Dyllick & Muff, 2016; Evans et al., 2017; Lüdeke-Freund, 2018; Schaltegger et al. 2016; Schneider & Clauß, 2020).
How is this important in regards to the circular economy?
The drivers for circular economy enable a transition from a traditional “linear” mode of production and are fuelled by emerging business risks and emerging technologies as a driver for the adoption of more circular modes of production (OECD, 2018; 2019).
To enable the transition towards a circular economy, certain barriers for SMEs are identified that need to be overcome, such as hindering regulations, the requirement of investment costs, accounting systems deal with the linear economy, convincing customers through marketing, finding partners to cooperate with, customers do not realize that circular economy is the way forward; scientific knowledge on circular economy issues does not match knowledge demand of SMEs (van Renswoude et al., 2015). However, the following opportunities dominate innovation and competitive advantage, additional revenue streams, long term contracts, customer loyalty feedback, multiple benefits of internal resource management, beneficial partnerships throughout the value chain (van Renswoude et al., 2015).
The application of circular economy processes can be tied to the following areas – use of fewer primary resources (recycling, efficient use of resources, utilisation of renewable energy sources), maintaining the highest value of materials and products (Product life extension, remanufacturing, refurbishments, and reuse of products and components), and changing utilization patterns (product as a service, sharing models, a shift in consumption patterns) (Rizos et al., 2017).
What different business model approaches are there for reaching a circular economy?
Business models for circularity (BMC) is one category that has emerged recently (Fraccascia et al., 2019). Among them nine circular economy strategies have been identified, which are grouped into the following categories: materials sourcing, design, manufacturing, distribution and sales, consumption and use, collection and disposal, recycling and recovery, remanufacture, circular inputs (Kalmykova et al., 2018). Furthermore, eight archetypes were developed, which are grouped into 3 categories, namely technological, social, and organisational (Bocken et al., 2014). In another approach 26, circular economy business model design options were identified, which are grouped into a value proposition, value delivery, value creation, and value capture (Lüdeke-Freund et al., 2019).
Among other present approaches, some researchers structure business models into the circular design, optimal use, circular support, and value recovery types (Achterberg et al., 2016). Others distinguish business models according to the material flows they address. Van Renswoude et al. (2015, page 6) focus on four to six cycles, namely: short loops, long loops, cascades, and pure cycles, as well as the power of dematerialized service and produce on demand. Based on these six cycles, they develop nineteen business models. Lewandowski (2016) focuses on regeneration, sharing, optimisation, looping, virtualizing, or exchanging and outlines a business model canvas as a tool to develop an own circular economy business model. Similar business models and strategies are also outlined in Bakker et al. (2014) and Bocken et al. (2016). The most commonly used typology, however, draws on the one developed by Accenture (Lacy et al., 2014), which are also applied to various examples (Stegeman, 2015). The five business models we are following in more detail are circular supply, resource recovery, product life extension, sharing platform, and product-service system (PSS). These are elaborated on and connected to strategic and competitive advantages (Lacy et al., 2020; Lacy & Rutqvist, 2015).