New innovative business models

innovative business models in india and innovative business models in education
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Dr.PeterCena,Swaziland,Researcher
Published Date:02-07-2017
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Circular Advantage Innovative Business Models and Technologies to Create Value in a World without Limits to GrowthCircular Advantage Innovative Business Models and Technologies to Create Value without Limits to Growth Executive Summary at a Glance • Companies face a rapidly increasing challenge, and opportunity, to grow their businesses and create value amidst volatile and scarce supply of natural resources and environmental concerns, driving up prices and uncertainty. • Circular Economy – an alternative model decoupling growth from scarce resource use – provides the key to managing this challenge at both the macro and micro level, allowing economic development within natural resource limits and allowing companies to innovate to enable customers and users to do ‘more with less’. A • ccenture’s client experience and research show leading global companies are following the lead of innovative smaller enterprises, applying the circular economy as a framework for growth and innovation towards ‘Circular Advantage’ in what our research shows is already a trillion dollar plus prize. • Five circular business models (Circular Supplies, Resource Recovery, Product Life Extension, Sharing Platforms and Product as a Service) and ten technologies—in particular ‘digital’ in the form of social media, cloud computing, analytics and mobility—are enabling speed and scale in ways not seen before. • These business models and technologies are making possible a fundamentally ‘customer-centric’ approach to Circular Advantage beyond simply efficiency gains which require a new mindset amongst executives and a new set of capabilities at the intersection of strategy, technology and operations. • To understand and capture the full business opportunity of Circular Economy, top executives need to ask themselves tough questions on the opportunity, value, capabilities, technology and timing of their investments on the journey to Circular Advantage. 2Introduction 1 Examples of Accenture research on the circular The growth model favored by economies trends are reversed, resource supply economy include World Economic Forum, “More and indeed most companies for the past disruptions coupled with rising and With Less: Scaling Sustainable Consumption 250 years—based on the availability increasingly volatile prices will in the next and Resource Efficiency,” January 2012 (http:// of plentiful and inexpensive natural two decades translate into trillion-dollar www.accenture.com/us-en/Pages/insight-more- resources—is living on borrowed time losses for companies and countries whose with-less-scaling-sustainable-consumption- resource-efficiency.aspx); World Business Council and, so are companies that rely on it. growth remains tied to the use of scarce for Sustainable Development, “Vision 2050: That’s the consensus of research efforts and virgin natural resources. The New Agenda for Business,” February 2010 and practical experience of the past two (http://www.wbcsd.org/web/projects/BZrole/ 1 For businesses and their top executives, decades, including our own at Accenture. Vision2050-FullReport_Final.pdf); and United responsible for setting the direction of Nations Global Compact and Accenture, “The This body of research and experience tells their firms, this leads to one inescapable UN Global Compact—Accenture CEO Study on us that when resources are abundant conclusion: Continued dependence on Sustainability 2013,” September 2013 (http://www. accenture.com/SiteCollectionDocuments/PDF/ and inexpensive (and the impact on scarce natural resources for growth Accenture-UN-Global-Compact-Acn-CEO-Study- the environment is not a prevailing exposes a company’s tangible and Sustainability-2013.PDF) concern), the current “linear” approach to intangible value to serious risks. 2 satisfying demand can be very successful. Intergovernmental Panel on Climate Change, • Revenue reduction: Supply uncertainties “Climate Change 2014: Impacts, Adaptation, and Companies are able, with ever-increasing and changing consumer preferences Vulnerability,” October 2013 (http://www.ipcc.ch/ efficiency, to extract raw materials, report/ar5/wg2/) could prevent companies from generating use those materials as inputs to the revenues and maintaining market share. 3 manufacturing of desired products, and National Climate Assessment, U.S. Global Change For instance, companies that depend Research Program, “Climate Change Impacts in the sell and ship those products to as many heavily on scarce resources might have United States,” (http://nca2014.globalchange.gov/) customers as possible (who use and to shut down production at times and be discard them after the products have 4 Modeling for this paper is done using data from unable to deliver demanded volumes. served their purpose). Put in shorthand, the United Nations Population Division, World an economy built on the principles of Bank, HSBC “World in 2050,” OECD long-term • Cost increases: Companies whose outlook (Economic Outlook No 93 - June 2013 - ‘take, make, waste’. growth is tightly tied to scarce Long-term baseline projections), Global Footprint resources will find themselves at a Network, IPCC, The Conference Board, “The total However, we are rapidly approaching a economy database,” and Krausmann, F., Gingrich, competitive disadvantage due to rising point at which the linear model is no S., Eisenmenger, N., Erb, K.H., Haberl, H., Fischer- and volatile prices that reduce their longer viable: when, due to rising global Kowalski, M. “Growth in global materials use, GDP ability to forecast and compete with less affluence, the availability of many non- and population during the 20th century.” The model resource-intensive competitors. uses population and economic growth from 1961- renewables (including metals, minerals, 2050 together with resource intensity variables for and fossil fuel) cannot keep up with I • ntangible assets: A company’s biomass, fossil energy, ores and industrial minerals, demand, the regenerative capacity of environmental footprint and resource and construction minerals to forecast future renewables (such as land, forests, water) demand per resource category. Improvements in dependence could erode brand value becomes strained to its limits, and the resource intensity have been included to allow as consumers shun companies with simulation of various technological development planetary boundaries become threatened unsustainable business practices. 2 scenarios. Global resource availability has been as never before. As shown by the IPCC , And, as planetary bottlenecks and modeled by connecting ecological footprint data 3 US National Climate Assessment , and resource scarcity become more critical, to economic output and checking against resource many others, negative effects of the reserve estimates. Ninety percent of construction policymakers likely will favor companies current growth model are already being mineral volumes are removed to adjust for non- that can prove they have positive societal scarce resources such as sand and gravel. A reported on all continents. Accenture impact and can operate without depleting 4 relatively weak stabilization trajectory is used for this research shows that unless current the country’s natural resources. paper, where movement to a one-planet economy starts in 2016 and is reached not before 2050. 3What’s the alternative? buildings, printers, etc. Once a business (by 80 percent) production process The answer is the goes circular, every aspect of it must that renders a better-fitting and lighter circular economy. be configured with the use and return shoe that can help boost an athlete’s in mind in addition to production and performance. Flyknit and similar efforts In a circular economy, growth is selling. In this sense the circular economy reflect the central role circular thinking decoupled from the use of scarce brings about a massive re-alignment of plays in Nike’s business. “We build our resources through disruptive technology customer and business incentives – no business by decoupling our growth from and business models based on longevity, more intentionally designing products resources that are becoming increasingly renewability, reuse, repair, upgrade, to break down, for obsolescence or scarce,” wrote Hanna Jones, Nike’s vice refurbishment, capacity sharing, and disregarding externalities. president of Sustainable Innovation, in dematerialization. Companies no a post on the Nike blog. “This isn’t our longer focus mainly on driving more Many companies across the globe have sustainability strategy, it’s integral to volume and squeezing out cost through already adopted circular principles to 6 our business strategy.” greater efficiency in supply chains, close the loop on energy and material factories and operations. Rather, they through efforts such as renewable Circular thinking also drives the very concentrate on rethinking products and energy investments and recycling. mission of Novozymes, a world leader services from the bottom up to “future What’s making this space truly exciting? in biotechnology. The company focuses proof” their operations to prepare for Pioneering innovators have realized on applying innovation in biorefining to inevitable resource constraints – all the circular economy is not only about help the world shift from an economy the way through to the customer value resource supply and use efficiency, based on non-renewable (linear) oil proposition. This implies eliminating but indeed even more about evolving to one that uses renewable (circular) waste, creating step changes in their business models to transform plant- and waste-derived food, feed, resource productivity and at the same the nature of resource demand from fuel and materials instead. Novozymes time enhancing the customer value the customer’s point of view, as in the sees such activity as the cornerstone proposition on dimensions such as price, case of the power tool. Research by of a bigger renewable economy that quality and availability. Accenture has identified more than 100 can “replace oil, strengthen security of truly disruptive companies applying food and energy supplies, create ‘green’ By design, circular economy models circular economy thinking and new jobs, increase incomes and ensure green require companies to become highly technology to transform in ways that growth—all at the same time.” Among involved in the use and disposal of seriously threaten incumbents. We call the most compelling by-products of products, finding ways to move revenue the competitive edge these companies this growth strategy is a 75 million-ton generation from selling the physical gain the “circular advantage”. Net-net, reduction in CO2 emissions by 2015 stuff to providing access to it and/or the circular advantage comes through through its customers’ application of optimizing its performance along the 7 innovating for both resource efficiency Novozymes’ products. entire value chain. Take a conventional and customer value—delivering at power drill as a telling case. A power the heart of a company’s strategy, drill is typically used for less than 20 technology and operations. 5 minutes during its life cycle and while customers need a hole in the wall – Take, for instance, Nike, which has the market supplies millions of tools worked for years on ways to balance collecting dust most of the time. If, the dual demands of resource instead, users had convenient access to productivity and value delivered to a high-quality tool only when needed, customers. This pursuit has fostered they could save money and time while numerous innovations that have the product could be optimized for boosted the performance of products longevity, component reuse, recycling, in the marketplace while reducing the GPS tracking for finding the nearest products’ environmental impact. One tool, user communities for advice, example is Nike’s FlyknitTM technology, mobile payments to simplify pick-up and which enables the company to create drop-off. This thinking can be applied a shoe upper out of a few single to anything from DIY tools to trucks, threads. The result is a less-wasteful 45 Thomas L. Friedman, “Welcome to the Sharing Our research on Nike, Novozymes and When used together the three shape new Economy,” The New York Times, July 20, 2013 others like them reveals three key value chains—less exposed to resource (http://www.nytimes.com/2013/07/21/opinion/ things businesses need to understand to supply risks, more focused on customer sunday/friedman-welcome-to-the-sharing- successfully play in the circular economy: value creation and with more attractive economy.html?pagewanted=all&_r=0) cost structures. These new value chains 6 1. The emergence of five circular business World Economic Forum, “How can companies can result in massive productivity gains. leave a lighter footprint?” January 24, 2014 (http:// models available to companies How much? Up to four times the amount— forumblog.org/2014/01/can-companies-leave- enough to tackle the estimated 40 billion lighter-footprint-world/) 2. The role of five new business ton material shortage we’ll reach by 2050. capabilities required to deliver them 7 Novozymes, “Biobased economy: Replacing an oil- Not a bad advantage considering that in based with a green economy,” 2014 (http://www. a typical modern manufacturing company 3. The disruptive power of ten digital and novozymes.com/en/sustainability/benefits-for-the- materials make up around 40 percent engineering technologies enabling change world/biobased-economy/Pages/default.aspx) of total costs, compared to less than 20 percent for labor. Nike Flyknit 5Calculating the Value of the Circular Economy In the past few years, several notable In our latest research, Accenture has 1. Lasting resources that can be 8 studies have produced estimates of the taken a top-down approach based on a continuously regenerated over time to overall value of the circular economy, holistic definition of the circular economy not only last longer (efficiency) but last often with diverging results. The reason and an analysis of the different ways forever (effectiveness) (e.g., renewable for this is a lack of common definition, in which resource supply and demand energy and biochemicals): Approximately which means the resulting estimates patterns can be shifted by it. This 40 percent of total value depend on the boundaries applied to approach enabled us to get the broadest 2. Liquid markets where products and the circular economy—key assumptions view of value potential and where it sits. assets are optimally utilized by becoming underlying the analysis, and analytical Our research found that for the global easily accessible and convertible between approach. Most commonly, bottom-up economy, the full set of circular economy users (e.g., sharing / trading idle product calculations are made using representative approaches can add over five times and asset capacity): 10 percent products, material or industries and, as the value of current best estimates by such, are not comparable to studies using 2030 by reducing resource constraints 3. Long life cycles where products are other industries, material and products as to growth. A detailed set of data will be made to last (e.g., monetizing product starting points. In many cases, the focus made available in a forthcoming book longevity through service, upgrade and is on material cost savings (i.e., a waste but we can now reveal that this value is remanufacturing): 30 percent and recycling perspective)—an important divided into four broad areas (Figure 1). aspect, but one that does not provide the 4. Linked value chains where zero waste full picture. Across the studies, however, is generated from production to disposal we conclude that the circular economy has (e.g., boosting recycling and resource the potential to become a trillion-dollar efficiency) 20 percent opportunity globally in the near future. Figure 1: Areas of value creation in the circular economy Multiple users Lasting resources Liquid markets Breaking the link between resource Eliminating idle time of products in the scarcity and economic activity by using markets in order to grow the number of only resources that can be continuously users that gain benefit from the same regenerated for productive use volume of goods Linked value chains Longer life cycles Minimizing resource value destruction in Keeping products in economic use for a value chain by reclaiming and linking longer to satisfy a greater demand and up waste outputs as useful inputs into provide more utility without needing a next life production process additional natural resources 6The Trouble with the Prevailing Growth Model 9 Among those who have already explored There are volumes of research that The world is already using approximately the connection between growth and resource highlight the problem of increasing 1.5 planet’s worth of resources every consumption include The Club of Rome (http:// 9 resource scarcity and mounting waste. year. Based on the current pace, we’ll www.clubofrome.org/), Ernst U.von Weizsacker in 12 Accenture’s own analysis confirms the consume three planets by 2050. It’s an Factor Four: Doubling Wealth, Halving Resource Use strong relationship between resource unsustainable scenario, especially given (http://www.amazon.com/Factor-Four-Doubling- Halving-Resource/dp/1853834068), Walter R. consumption and GDP (Figure 2). In fact, the lack of disruptive innovations on the Stahel in The Performance Economy (http://www. historically for every 1 percent increase in horizon that can scale quickly enough to amazon.co.uk/Performance-Economy-Walter- GDP, resource usage has risen on average change the trajectory. R-Stahel/dp/0230584667), The Ellen MacArthur 10 0.4 percent. This means population Foundation (http://www.ellenmacarthurfoundation. 8 Ellen MacArthur Foundation, “Towards the and economic growth are key drivers org/), and the United Nations Environment Circular Economy,” Volumes 1 and 2, 2012- Programme’s International Resource Panel (http:// of resource demand. Clearly, economic 2013, (http://www.ellenmacarthurfoundation. www.unep.org/resourcepanel/) development as we know it and resource org/business/reports/ce2012 and http://www. ellenmacarthurfoundation.org/business/reports/ scarcity are on a collision course. 10 Accenture analysis based on data from SERI and ce2013); The Netherlands Organisation for Applied Dittrich, M. (2014). Global Material Flow Database. Scientific Research, “Opportunities for a Circular Fortunately, commodity prices have been 2014 version and World Bank GDP data, http:// Economy in the Netherlands,” 2013 (http://www. historically inversely related to growth. data.worldbank.org/ government.nl/documents-and-publications/ Costs declined automatically. But around reports/2013/10/04/opportunities-for-a-circular- 11 Accenture analysis based on data from World 2000 this relationship reversed (Figure economy-in-the-netherlands.html); Waste & Bank, Commodity Price Data (The Pink Sheet), 3), making reliance on resources for Resources Action Programme (http://www.wrap. April 2014 version 11 org.uk/content/eu-vision-2020); Lin Huocan and Liu growth increasingly unattractive. As a 12 Cheng, “Circular Economy Poised for Rapid Growth,” Global Footprint Network (2012) growing population and expanding global China Economic Net, June 29, 2012 (http://en.ce. middle class drive demand for resources, cn/Insight/201206/29/t20120629_23449603. these trends will continue and ultimately shtml); World Economic Forum & Accenture, “More threaten continuation of business as usual. with Less: Scaling Sustainable Consumption and Resource Efficiency”, 2012 Figure 2: Around the world, the link between increased resource use and growth is evident Log plot of Resource use and Economic development, 166 countries Tons/Cap 100 Australia USA Brazil China Germany Resource 10 use Colombia India Niger Bangladesh R-Squared: 0,57 P-Value: 0,001 1 GDP/Cap 100 1,000 10,000 100,000 Economic development 7Along with this excessive and Needless to say the unsound use of natural resources economic impact of are myriad environmental problems: soil degradation, water acidification, resource scarcity on air pollution, waste generation and this scale would be carbon emissions, to name a few. These are leading to a transgression devastating. of the nine key planetary boundaries 13 http://www.stockholmresilience.org/21/research/ identified and quantified by a team of 13 research-programmes/planetary-boundaries/ 28 internationally renowned scientists. planetary-boundaries/about-the-research/the- We’ve passed three already—rate of nine-planetary-boundaries.html biodiversity loss, climate change, and 14 Ibid. human interference with the nitrogen 14 cycle , threatening abrupt or irreversible environmental changes that can have far-reaching social and economic consequences. If nothing is done to address the situation, total demand for limited resource stocks (like biomass, fossil energy, and many metals) is expected to reach 130 billion tons by 2050. That’s up from 50 billion in 2014 and it will result in more than 400 percent overuse of Earth’s total capacity—a feat that’s physically impossible. Even with a relatively optimistic forecast for technological innovation and improvements in resource efficiency, demand for limited resources will be 80 billion tons with an overuse of around 40 billion tons by 2050 (Figure 4). The economic impact of resource scarcity on this scale would be devastating. 8Figure 3: After the year 2000, a new trend in the growth and resource use dynamic can be seen Commodity price & GDP index 1975-2013 Index(2010=100) 200 1975-2000 2000-2013 For every 1% growth in GDP For every 1% growth in GDP commodity price index fell 0.5% commodity price index rose 1,9% 150 100 50 0 1975 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2013 Energy, Food, Raw Materials, Commodity index Fertilizers, Metals & Minerals, GDP index Precious Metals Figure 4: The widening gap between sustainable resource availability and demand Resource supply / demand imbalance 2015-2050 Bn Tons Demand Availability Rising costs for 90 material, energy, 80 land, water 70 Business as usual 60 supply gap 50 Extreme volatility in 40 commodity markets 30 20 Economic and 10 social risk of supply 0 disruptions 2015 2020 2025 2030 2035 2040 2045 2050 Scenarios include limited resource stocks only and therefore dier from total material consumption. Most notably exclude construction mineral volumes (e.g. sand and gravel) where scarcity is not an issue 9The Circular Economy: The End of Business as Usual Business as usual simply cannot continue. returned and used in cyclical chains. This the underlying concepts of the circular Governments and companies around can be accomplished in a number of ways. economy—“cradle to cradle,” industrial the world are looking for alternative For instance, a company could promote ecology, biomimicry and others— approaches to drive future growth. The using ”lasting” resources to break the link have been around for decades and circular economy is one of the few viable between scarcity and economic activity by meritoriously explored by pioneers like and scalable growth models that can using only inputs that can be continuously Bill McDonough, Michael Braungart, radically improve resource productivity to reused, reprocessed, or renewed for Walter R. Stahel and Ellen MacArthur. reverse these trends. And, in the process, productive use (e.g. renewable energy, But what makes the circular economy so drive greater innovation and job creation. biomaterial or fully recycled / recyclable ripe for widespread adoption now are the Better yet, it promises to transform resources). Or it could create more disruptive technologies that allow massive the dynamics of competitiveness and “liquidity” in markets by making products change—change that would have been bestow real competitive advantage to and assets more accessible and easy to impossible only a decade ago. Change at early movers. In the case of the EU, for convert between users—eliminating idle speed and scale. One obvious example: example, it has been estimated that time and increasing the number of people the emergence of digital as a growing every one percent increase in resource who benefit from a given volume of economic phenomenon around the efficiency is worth as much as 23 billion goods. It could develop linked value chains, world. Many companies have made great euro for business and can create up to reclaiming and looping back waste outputs 15 progress in adopting digital technologies two hundred thousand jobs. as useful inputs into a new production to dramatically improve aspects of their process. Or it could simply extend the At its core, the circular economy is about business. Such efforts really only scratch useful life cycle of existing products. creating new value chains that decouple the surface of what’s possible if one growth from the use of scarce and linear To be sure, the intent of these circular consider how companies can now also resource inputs—i.e., inputs that cannot be value chains is nothing new. Many of use social, mobile, machine-to-machine 10communication, etc. to interact with virgin resources), the need for a large- already in the market. Focus shifts from the marketplace and products in use to scale central organizing infrastructure producing things from virgin resources to analyze and optimize value chains, and is minimized, or decentralized. Business transferring existing products between create greater customer value. models can now be designed in new users and transforming used products ways: Instead of focusing on large into new ones. Consider the case of connecting physical inventories of homogenous goods 15 Macroeconomic modelling of sustainable products to the digital grid. Remote shipped and sold at central locations, development and the links between the economy access, monitoring, and information on a business model can be created, for and the environment, ENV.F.1/ETU/2010/0033, a product’s status and location—which example, that focuses on the customer Bernd Meyer, November 2011 (http://ec.europa. used to require manual work to handle— eu/environment/enveco/studies_modelling/pdf/ and the products’ use. Circular inputs is now available instantly. Transaction exec_sum_macroeconomic.pdf) used in production also tend to be more 16 costs drop significantly since services local (renewable energy, biomass, and 16 Some argue costs will often go all the way can be provided only when needed and waste streams) than linear inputs (oil, down to zero, “speeding us to an era of nearly on the products that need them. Users free goods and services.” See Jeremy Rifkin, The virgin metals, and minerals), further can access products without interacting Zero Marginal Cost Society: The Internet of Things, supporting decentralized business models the Collaborative Commons, and the Eclipse of with a person, and products can “talk” to focusing on a local chain of production, Capitalism, Palgrave Macmillan, 2014 (http:// each other through machine-to-machine consumption and return. www.amazon.com/Zero-Marginal-Cost-Society- communication which enables, amongst Collaborative/dp/1137278463) other things, automatic management of In this new environment the unit cost systems of products or components. of resources becomes less of a factor because instead of using additional When transaction costs are reduced and resources to manufacture new goods, information availability increases (and companies and customers use what’s economic activity is decoupled from 11Five Business Models Driving the Circular Economy At a conceptual level, then, there is But at a practical level, it’s not easy. driving positive impact ‘through growth’. a strong and intuitive business case The fact is most companies today are That’s a concept business and economies behind the circular economy both in the simply not built to capitalize on the can get behind. short and long-term: What company opportunities the circular economy There are five underlying business models wouldn’t want to reduce its dependence presents. Their strategies, structures and that Accenture has identified in its on increasingly scarce and costly operations are deeply rooted in the linear analysis of more than 120 case studies of natural resources while turning waste approach to growth—it’s in their DNA. companies that are generating resource into additional revenue and value and That’s why companies seeking the circular productivity improvements in innovative sharpening their customer insight and advantage will need to develop business 17 ways (Figure 5). value proposition? models that are free of the constraints of linear thinking. These models are not just about doing ‘less bad’, but they are about Figure 5: The five circular business models Business Models C. Returning Circular byproducts Other Circular Supplies: Provide renewable energy, supplies loop bio based- or fully recyclable input material to replace single-lifecycle inputs B. Waste Resource Recovery: Recover useful as a resource Manufacturing Logistics resources/energy out of disposed products or by-products Product Life Extension: Extend Sales and working lifecycle of products and Product A. Resell Procurement marketing components by repairing, upgrading design and reselling B. Repair/ Upgrade Sharing Platforms: Enable increased C. Remanufacture utilization rate of products by making possible shared use/access/ownership Product A. Re-/upcycle Product as a Service: O‚er product access use and retain ownership to internalise Share benefits of circular resource productivity Reverse Can be applied to product flows in any part of the value chain End of life logistics disposal Waste leakage (eliminate) 12These business models have their own distinct characteristics and can be used singly or in combination to help companies achieve massive resource productivity gains and, in the process, enhance differentiation and customer value, reduce cost to serve and own, generate new revenue, and reduce risk. The company relies on an “anaerobic Circular Supplies Resource Recovery digestion” system that converts food waste into biogas that runs the campus’s The Circular Supplies business model Recovery of embedded value at the end of microturbines and boilers replacing is based on supplying fully renewable, one product lifecycle to feed into another virtually all of the natural gas previously recyclable, or biodegradable resource promotes return chains and transforms used. To date the initiative has yielded an inputs that underpin circular production waste into value through innovative 20 18 percent on Kroger’s investment. and consumption systems. Through recycling and upcycling services. Having it, companies replace linear resource its bedrock in traditional recycling An example of a company that is approaches and phase out the use of markets this business model leverage new recovering residual value potential in scarce resources while cutting waste, technologies and capabilities to recover post-consumer product waste is carpet and removing inefficiencies. This model is almost any type of resource output at manufacturer, Desso. The company most powerful for companies dealing with a level of value equivalent to, or even developed a separation technique called scarce commodities or ones with a major above, that of the initial investment. Refinity®, which enables separation of environmental footprint. Solutions range from industrial symbiosis yarn and other fibers from carpet backing. to integrated closed loops recycling 18 After a purification stage, this allows the Royal DSM is one player at the forefront and Cradle-to-Cradle® designs where yarn to be returned for the production of of adopting the Circular Supplies disposed products can be reprocessed new yarn in a Cradle-to-Cradle® system. business model to fuel its shift from a into new. This model, which enables a virgin material supplier to a company 17 company to eliminate material leakage In 2013-2014, drawing on primary and secondary that reuses materials and provides and maximize economic value of product research, Accenture analyzed business and economic new eco-friendly ones. One example: models, technologies, capabilities, and customer return flows, is a good fit for companies The company developed cellulosic bio- value propositions of more than 120 circular that produce large volumes of by-product economy case studies. The companies analyzed ethanol, a byproduct of co-fermenting or where waste material from products represented a wide range of geographies and sugars derived from crops. Such bio- can be reclaimed and reprocessed cost industries, with the most prevalent being companies based chemicals have great potential effectively. in Europe or North America and in the high tech, to reduce waste and net CO2 emissions textiles, automotive and consumer goods industries. compared with fossil fuels. The cellulosic In the food sector, the Resource Recovery 18 For more on DSM’s experience, see http://poet- bio-ethanol has created a new revenue business model allows US grocery dsm.com stream for DSM from a feedstock that chain Kroger to convert food waste 19 was previously considered very low value, into renewable energy. The 150 tons of David Hodes, “Advancing Biofuels,” GCXMag.com, April 10, 2013 and the company anticipates it could food waste the company produces each eventually create upwards of 70,000 day at its Ralphs/Food 4 Less Compton 20 Bill DiBenedetto, “Kroger Converts Food Waste 19 related jobs. distribution center—which used to be seen into Renewable Energy,” TriplePundit, April 15, 2013 as a major cost in terms of lost revenue, (http://www.triplepundit.com/2013/08/kroger- converts-food-waste-renewable-energy/) disposal fees and emissions—now provides inexpensive, clean energy. That energy in turn powers a 49-acre campus that houses Kroger’s offices as well as the distribution center. 13Product Life Extension Sharing Platforms Product as a Service Product Life Extension allows companies The Sharing Platforms business model The Product as a Service business model to extend the lifecycle of products and promotes a platform for collaboration provides an alternative to the traditional assets. Values that would otherwise among product users, either individuals or model of “buy and own.” Products are be lost through wasted materials are organizations. These facilitate the sharing used by one or many customers through instead maintained or even improved by of overcapacity or underutilization, a lease or pay-for-use arrangement. repairing, upgrading, remanufacturing increasing productivity and user value This business model turns incentives or remarketing products. And additional creation. This model, which helps for product durability and upgradability revenue is generated thanks to extended maximize utilization, could benefit upside down, shifting them from usage. Using this model, a company companies whose products and assets volume to performance. With a Product can help ensure that products stay have a low utilization or ownership rate. as a Service business model, product economically useful for as long as However, today it’s most commonly longevity, reusability, and sharing are possible and that product upgrades found among companies specializing in no longer seen as cannibalization risks, are done in a more targeted way (for increasing the utilization rate of products but instead, drivers of revenues and instance, an outdated component is without doing any manufacturing reduced costs. This model would be replaced instead of the entire product). themselves, putting considerable stress attractive to companies whose products’ This model is appropriate for most on traditional manufacturers. cost of operation share is high and that capital-intensive B2B segments (such have a skill advantage relative to their Ride-sharing company Lyft, Inc. is as industrial equipment) and B2C customers in managing maintenance of revolutionizing one segment of the companies that serve markets where products (giving them an edge in selling travel market with the Sharing Platforms pre-owned products (or “recommerce”) services and recapturing residual value business model. Lyft’s co-founders are common or whose new releases of a at end of life). realized that cars making trips within product typically generate only partial cities were vastly underutilized; they Michelin, one of the world’s leading tire additional performance benefits for estimated 80 percent of seats were manufacturers, has made significant customers over the previous version. empty. The company helps fill those strides toward adopting the Product as By embracing the Product Life Extension seats by enabling, via its mobile app, a Service model to create an innovative business model, Google is addressing individuals who need a ride somewhere program in which fleet customers can the obsolescence challenge in the to request one from someone who has lease instead of purchase tires outright. mobile phone arena: What to do with a car. Pickup and ride fee (typically Under this program, Michelin effectively devices when they no longer suit a 20 percent to 30 percent lower than a sells “tires as a service.” Customers pay customer’s needs? The company’s Project comparable taxi fare) is paid through the per miles driven. They don’t own the tires. Ara initiative focuses on reinventing app, of which Lyft takes a 20 percent And don’t have to deal with the hassles 22 the smartphone by breaking it down cut. The business model appears to of punctures or maintenance of any 24 into replaceable modules that can be resonate not only with customers but kind. By adopting a Product as a Service assembled and customized according with investors as well: The company model, Michelin is incentivized to develop to user requirements. With the ability in April 2014 announced a new round longer lasting tires. And, by getting worn- to swap modules, users can easily alter of funding worth 250 million (for a out tires back, the company is motivated their phone with basic skills and tools total of 333 million thus far), which to make sure through design and material (thus keeping the phone relevant for a the company says will help fuel Lyft’s selection that they can be reprocessed longer period of time) and repair the ongoing domestic—and, eventually, into a valuable input for new tires or 23 phone more easily and inexpensively by global—expansion. something completely different. replacing only what is broken instead of the entire phone. By maximizing a phone’s useful lifetime, Google reduces the need for virgin resources to make new phones while minimizing the amount of E-waste generated. A possible complement to this design principle could be an online marketplace where users can trade phone modules to extend the lifecycle of components and 21 recapture residual value. 1421 Project Ara (http://www.projectara.com/) Circular business models are disrupting Another interesting development around industries around the world. In fact, our circular economy: the emergence of 22 From the Lyft entry in Wikipedia (http:// research revealed successful adoption ecosystems forming around pioneering en.wikipedia.org/wiki/Lyft) of these business models has exploded organizations—both start-ups and 23 The Tech Chronicles, “Lyft snares 250 million for in the past decade. Take Airbnb for long-established firms. One of the U.S., international growth,” SFGate, April 2, 2014 example. The company allows users best examples: carpet manufacturer (http://blog.sfgate.com/techchron/2014/04/02/lyft- to rent rooms or entire homes from Interface. Long a pioneer of circular snares-250-million-for-u-s-international-growth/) members through an online site. Founded practices and on a mission to achieve its 24 Michelin Fleet Solutions (http://www. in 2008, the company has overtaken goal of zero negative impact, Interface michelintruck.com/michelintruck/services/ both InterContinental Hotels and Hilton created a network of circular business MichelinFleetSolutions.jsp) Worldwide as the largest hotelier partners. From return chain sourcing to 25 (offering more than 650,000 rooms) and more sustainable installation practices, Gregory T. Huang, “Gazelle, Apple, and Amazon: The Future of ‘Recommerce,’” Xconomy, has been growing bookings and revenues it relies on its network of circular October 22, 2013 (http://www.xconomy.com/ several hundred percent per year. And economy business partners to help drive boston/2013/10/22/gazelle-apple-amazon-future- electronics reseller Gazelle, founded in innovation and jointly develop new recommerce/) 2006, was seven years later going for solutions to deliver on Interface’s zero 26 Walmart, “Walmart Doubles Down on Video 100 million in revenue in a 7 billion negative impact aspiration. Gaming,” corporate news release, March 18, 2014 US market for consumer electronics (http://news.walmart.com/news-archive/2014/03/18/ Similarly, drinks manufacturer Carlsberg “re-commerce” by leveraging the walmart-doubles-down-on-video-gaming) 25 Group and a subset of its global suppliers Product Life Extension model. have joined forces to develop the next 27 Carlsberg, “Carlsberg joins forces with Initially, market disruption through generation of packaging optimized for suppliers to eliminate waste by developing next generation of packaging for high-quality circular business models was driven by recycling and reuse while, at the same ‘upcycling,’” January 21, 2014 (http://www. startups. Now large multinationals are time, retaining or improving quality carlsberggroup.com/investor/news/Pages/Carlsber making serious moves as well. H&M and value. The cooperation has been gjoinsforceswithsupplierstoeliminatewastebydeve collect garments in all stores to close formalized through the “Carlsberg Circular lopingnextgenerationofpackagingforhigh-quality the textile loop, BMW and Cisco Systems Community,” which has set targets to %E2%80%98upcycling%E2%80%99.aspx) are extending the life of used products include 15 partners and have at least 28 The Launch of The Circulars, Accenture through refurbishment and resale, Philips three products Cradle-to-Cradle® certified YouTube channel, http://www.youtube.com/ 27 offer “light as a service” to cities and by 2016. At an Accenture event at the watch?v=L6gE4jycbbM municipal governments, Amazon.com World Economic Forum in 2014, Jørgen textbooks as a service, Daimler’s Car2Go Buhl Rasmussen, Carlsberg’s CEO, said: (a car sharing service) had 600,000 “I see there is a business case, it’s in the customers in 2014 heading for 100 interest of consumers and also of the 26 28 million in revenue and Wal-Mart is planet and society”. making a push into the 2 billion market for pre-owned videogames through an in-store trade-in program. 15Ten Transformational Technologies Make Circular Business Models Possible Business model innovation offer embed circular business models all the In our research we identified 10 disruptive companies powerful options for embracing way through to the customer’s use and technologies commonly used by the the circular economy. But many of the return is a major new frontier for digital leading circular economy companies models, if not most, would not be possible that revolutionizes levels of service and (Figure 6). These technologies fall into without the support of innovative new flexibility, when the physical and digital three categories: digital (information technologies—especially digital ones such worlds merge and products start to flow technology), engineering (physical as social, mobile, analytics, cloud and between users, markets, and lifecycles at technology), and hybrids of the two. ‘machine to machine’ technologies (e.g. the very low transaction costs. wirelessly connected internet of things not just people). Designing value chains to Figure 6: Disruptive technologies used by pioneers to launch and operate circular business models with speed and scale Circular Resource Product Life Sharing Product as Supplies Recovery Extension Platforms a Service Mobile M2M Cloud Digital Social Big Data Analytics Trace and return systems 3D Printing Hybrid Modular design technology Advanced recycling tech Engineering Life and Material sciences Based on 120+ case studies and 50+ interviews Number of icons in respective boxes indicate relative importance 16Digital technologies play an important When tens of thousands of taxi drivers to print houses in less than a day using role in establishing real-time in Europe went on strike in June 2014, recycled material—at a cost of less than 33 information exchanges among users, protesting against digitally powered 5,000 per home. machines and management systems. Sharing Platform Uber, the power of 31 Trace-and-return systems, like those These technologies are intrinsically the transformation became very clear. by Scanimetrics, represent another key customer-focused and provide the While concerns from people who are hybrid solution. Scanimetrics offers information and connections needed being challenged by circular economy hardware, software and support for to maintain a relationship far beyond technologies need to be taken seriously, condition monitoring that is vital for the point of sale. Two examples in delaying change is a road to nowhere. low-cost predictive maintenance and telecommunication are Vodafone and On the day of the strikes, Vice-President 34 repair/remanufacturing chains. Hybrid Verizon which, through in-mobile of the European Commission, Neelie technologies play an important role in functionality and analytics, enable Kroes, commented that: “Whether it supporting Circular Supplies, Resource customers to automatically get a is about cabs, accommodation, music, Recovery, and Product Life Extension quote for the buy-back value of a used flights, the news or whatever. The fact models, serving as the bridge between phone and support in returning the is that digital technology is changing the digital and physical worlds. phone to a nearby store for instant many aspects of our lives. We cannot 29 reimbursement. address these challenges by ignoring 29 Kevin White, “Verizon Wireless Puts Smartphone them, by going on strike, or by trying to Recycling in the Palm of Your Hand,” Verizon Such connections enhance remote Wireless, April 17, 2014 (http://www.verizonwireless. ban these innovations out of existence visibility and control of assets, which com/news/article/2014/04/smartphone-recycling- … We need services that are designed device-trade-in.html) & Vodaphone Buyback (http:// are especially critical for the Product around consumers. The old way of vodafonebuyback.co.uk/) as a Service, Sharing Platforms and creating services and regulations around Product Life Extension business models. 32 30 For more Accenture insights on digital disruption, producers doesn’t work anymore.” By altering the way businesses and see “Accenture Technology Vision 2014” (http:// www.accenture.com/microsites/it-technology- consumers interact with physical Engineering technologies—including trends-2014/Pages/home.aspx) and “Growth and digital assets and enabling advanced recycling, modular design, Strategies for a Digital World” (http://www. dematerialization, digital technologies and life and material sciences—enable accenture.com/SiteCollectionDocuments/PDF/ can transform value chains so they are the manufacturing of new goods Accenture-Growth-Strategies-For-Digital-World.pdf) decoupled from the need for additional from regenerated resources, as well 31 Griswold, Alison, “Uber Protests Jam Streets resources for growth. as the actual collection, return, and Across Europe”, Slate June 12 2014, (http://www. processing of goods and materials and slate.com/blogs/moneybox/2014/06/12/uber_ Another example is vintage fashion cost-efficient collection of used assets protests_snarl_europe_taxi_limo_drivers_demand_ marketplace Poshmark, (Product Life for remanufacturing. Making these regulation_for_ride.html) Extension) which moved its entire technologies especially important for 32 Kroes, Neelie / European Commission, “My shopping experience and store to a running Circular Supplies and Resource view on today’s taxi protests and what it means mobile device. The company leverages Recovery models. for the sharing economy”, 11/06/2014 (http:// social media and analytics to optimize ec.europa.eu/commission_2010-2014/kroes/en/ the shopping experience for millions of Hybrid technology is partly digital and blog/my-view-todays-taxi-protests-and-what-it- customers by providing real-time advice. It partly engineering. It can establish a unique means-sharing-economy) also uses technology to, for example, stage type of control over assets and material 33 Karyne Levy, “A Chinese Company 3-D Printed 10 collaborative real-time shopping events, flows. It allows a company to digitally Houses in a Day,” Business Insider, April 14, 2014 some of which have attracted more than identify the history, location, status and (http://www.businessinsider.com/a-chinese-company- 30 50,000 participants at a time. application of materials and goods while, at 3d-printed-10-houses-in-a-day-2014-4I83ZO) the same time, support ways to physically 34 The combination of digital technology http://www.scanimetrics.com/ collect, treat and reprocess them. For and circular thinking can indeed be example, 3D printing allows for the local powerful in reshaping value chains. manufacturing of downloadable digital This is not always without friction as designs into physical objects—which is what established norms and players might Chinese company Winsun New Energy Co., resist change during a transition. has done. The company uses 3D printing 17Five Capabilities of Successful Circular Leaders Along with new technologies, new PLM capabilities by expanding system On the customer-facing side, sales and capabilities are essential for adopting definition and scope to repair, in-service marketing will have to complement their a circular approach. From our research, and return activities. Major players chief focus on generating demand and five stand out as particularly important are now using the circular economy as fulfilling customer requirements with for successful implementation: a driver for innovation, as typified by generating greater revenues from the retailer Kingfisher. “For me, one of the use of products and services instead At the highest level, operating in a most exciting things about closed loop of the purchase of them. They also circular economy requires a significant innovation is that this is going to drive need to develop new ways to engage change in business planning and strategy. the next generation of business growth,” and incentivize customers to use and From focusing on maximizing throughput said the company’s CEO, Ian Cheshire. dispose of their products properly, and sales margin to participating in “Our target is to get to 1,000 products especially if adopting service-based continuous product and service loops 36 with closed-loop credentials by 2020.” models where customers no longer have to boost revenue. Doing this requires direct ownership of products and, as a not only concentrating on a narrow In sourcing and manufacturing, result, less incentive to take proper care definition of the core business, but also companies need to consider whether of them. Likewise, aftersales service participating in collaborative circular material inputs for product designs will continue to support service levels, networks (Figure 7) engaging suppliers, are renewable or fully restorable, as sell spare parts and manage channel manufacturers, retailers, service suppliers well as their environmental footprint partners, but will also have to become and customers. It’s vital to engage the and toxicity. And they will have to a much more active participant in full circular chain in one way or another make sure that production is not only managing the lifecycle of the product to understand where and how value is efficient, but that no resources are and maximizing its retained value. really created and build up activities lost during the process and that the All-in-all, in a circular economy, sales around that. For Philips’ CEO Frans van company can significantly scale up and marketing is all about deepening Houten, such a shift is fundamental to and maintain sourcing volumes from the understanding of the use phase of Philips’ embrace of the circular economy. return chains. The latter often means products and feeding back revealed “My company is redesigning its products shifting from large-scale sourcing from preferences from the markets so that and considering how to capture their few suppliers to sourcing from many, products and services can be adapted residual value,” he noted. “At the same heterogeneous and small-scale sources. for circular use. time, it is shifting from a transaction- This requires flexibility in production to a relationship-based business model— so that inputs of different qualities and one that entails closer cooperation with origins can be used in production of 35 customers and suppliers.” valuable products, instead of dumped or incinerated. One leader in circular Innovation and product development sourcing and manufacturing is furniture are different in a circular economy, retailer, IKEA. One of the company’s as focus shifts from designing for stated corporate goals is to “strive single use to designing for many life for resource independence by using cycles and users while optimizing the resources within the limits of the planet environmental effects of the materials and by encouraging all waste to be used. Adapting products to generate 37 turned into resources.” In pursuit of revenues not only at point of sale but this goal, the company has committed also during use (e.g. maintain, upgrade, to, by the end of FY15, having all of and share) as well as low-cost return its main home furnishing materials be chain and reprocessing (e.g. modularity, made from either renewable, recyclable traceability, and standardization) are 38 or recycled materials. key design challenges. On the software end companies often need to mature 1835 Frans Van Houten, “The Circular Revolution,” At the end of the process—holding the Project Syndicate, January 21, 2014 (http://www. entire loop together—are reverse logistics project-syndicate.org/commentary/frans-v and return chains, or disposal and houten-calls-for-a-shift-toward-a-new-economic- collection. Reducing logistics and waste modelbased-on-the-use-of-goods-that- management cost, retaining customers consumers-do-not-ownQudycVXfyHLLGMk5.99) with good return programs, and complying 36 Kingfisher, “The Business Opportunity of Closed with government regulations will continue Loop Innovation (https://www.kingfisher.com/ to be key concerns for this function. But netpositive/files/downloads/kingfisher_closed_ it also must be effectively designed to loop_innovation.pdf) manage opportunity-driven take-back/ 37 IKEA Group, “IKEA Group Sustainability Report buy-back from the markets and facilitate FY12” (http://www.ikea.com/ms/en_IE/pdf/ local reuse. A key capability, then, is sustainability_report/IKEA_Group_Sustainability_ quality control and determining the Report_FY12_FINAL.pdf) optimal return and reprocessing chain. 38 Ibid. Figure 7: Core capability shifts supporting circular business model adoption 2. Innovation & product 3. Sourcing and development manufacturing From designing for single use From homogenous supply chain to designing for many life to heterogeneous resource flow cycles and users innovation and cascading Manufacturing Logistics Sales and Product Procurement marketing design 1. Strategy From focus only on core business to manage complex and collaborative circular networks Product use Reverse End of life logistics disposal 5. Return chains 4. Sales & product use From compliance to From never seeing your product opportunity driven again to customer and asset life Waste take-back cycle management leakage (eliminate) 19New Systems Enablers & Policies Needed for the Circular Economy to Scale at Speed 39 Accenture, “Accenture CEO Study on While companies obviously are key to its economy by 17 percent to 24 percent, Sustainability 2013,” 2014 (http://www.accenture. fostering the shift to a circular economy, thus boosting GDP and creating between com/microsites/ungc-ceo-study/Pages/home.aspx) 40 governments play a no less important 1.4 and 2.8 million jobs). Similarly, 40 role. Indeed, successfully tackling a the government of China recently European Commission, “European Commission Efficiency Platform” (http:// systemic reshaping of the production and launched the China Association of ec.europa.eu/environment/resource_efficiency/ consumption model that has dominated Circular Economy (CACE)—which includes documents/erep_manifesto_and_policy_ the past 250 years requires a tight government officials, academicians and recommendations_31-03-2014.pdf) alignment of supply, demand and policy. entrepreneurs—to promote the growth 41 41 “China to promote circular economy,” China This means governments must use their of circular economy in that country. Daily, December 2, 2013 (http://www.chinadaily. powers to shape market conditions at Another example from Asia is the com.cn/bizchina/greenchina/2013-12/02/ the national and even global level to Singapore Packaging Agreement (SPA), content_17144815.htm) create the right conditions for change. a joint initiative by the government, 42 It also means them adopting the circular private sector and non-governmental Singapore Government, Waste Minimization and Recycling (http://app2.nea.gov.sg/energy-waste/ economy in their own substantial organizations to reduce packaging waste recycling/waste-minimisation-and-recycling) organizations and supply chains through from consumer products and the supply areas like public procurement. chain, saving almost 20 million USD over 43 USDA, ”Biopreferred program overview” (http:// 42 five years on locally consumed products. www.biopreferred.gov/files/BP_Fact_Sheet_HR.pdf) According to a recent Accenture and In the US circular economy is supported United Nations study, 83 percent of for example by the “Biopreferred” public business executives believe governments procurement program with the goal need to step up their efforts to to increase the development, purchase provide an enabling environment for and use of biobased products through business efforts on sustainability. procurement preference by Federal These CEOs also believe that only with Agencies and their contractors, and greater government intervention—at voluntary product certification and global, national and local levels—can 43 labeling for consumers. sustainability move from sporadic, incremental advances to a collective and Governments in general still need to transformative impact. They also want make much greater—and more rapid— clear policy and regulation that can progress in creating a policy environment provide long-term investment stability that nurtures circular business models. to accelerate the pace of change and Policies like: shifting taxation from labor greater investment. And they call for to resources, setting specific recycling active intervention by governments targets for industries, making companies and policymakers (in collaboration responsible for products throughout their with business) to align public policy life cycle, implementing tax premiums with sustainability at global, national for the use of regenerated resources, and local levels—including enacting and creating an international standard important measures on regulation, definition of waste. All are needed to 39 standards, and taxation. make circular thinking the de facto way of doing business in the future. Some governments are taking initial steps to that end. For instance, the European And governments can serve as both Union’s European Resource Efficiency catalysts for circular economy innovation Platform lays out policy recommendations and as role models in adopting circular and actions to help Europe move to a business models, reducing their own circular economy (and, in the process, reliance on natural resources in the reduce the total material requirements of materials they purchase. 20