Circular economy has become one of the most important growth parameters for companies, and many companies are taking advantage already. But the development of new circular business models is yet to be seen at scale. This is the clear conclusion from a survey of 79 CEOs from some of the world’s biggest companies.

“Circularity has an impact on every aspect of our product’s lifecycle – from the design of our cycles to recovery and recycling. Our sustainable growth strategy particularly relies on circular economy levers which help us to develop innovative processes and products”.

This is how Jean-Dominique Senard, the CEO of Michelin, the French manufacturer of tires, describes the company’s focus on circular economy. Michelin has introduced their so-called “4R Strategy”, which is their strategy for implementing circular economy. The company is a global frontrunner when it comes to implementing circular principles throughout the entire value cycle – from production lines, process, product innovation to how customers are engaged.

Michelin is just one example of the companies accelerating the implementation of disruptive circular business models – throughout the value cycle – from raw materials, design to production, distribution, recycling and the consumers’ roles.

This is the clear conclusion from the 2018 report “The New Big Circle – Achieving growth and business model innovation through circular economy implementation” published by The Boston Consulting Group and the World Business Council for Sustainable Development. The report detailed the opinions of  78 managers from a variety of industries around the world, and included one-on-one interviews with leaders, about the state of circular economy.

What is a circular economy?
The Ellen MacArthur Foundation’s definition of circular economy: “Looking beyond the current “take, make and dispose” extractive industrial model, the circular economy is restorative and regenerative by design. Relying on system-wide innovation, it aims to redefine products and services to design waste out, while minimizing negative impacts. Underpinned by a transition to renewable energy sources, the circular model builds economic, natural and social capital”.
Source: Ellen MacArthur Foundation

And the report has one clear message: companies know that circular economy is an important competitive edge and they are already doing it. According to the report, 97% of respondents believe that “the circular economy drives innovation to help make the company more efficient and competitive in areas such as sourcing, product development and production processes.”

Need-to, not nice-to

According to the business leaders surveyed, there is no other choice but to start a comprehensive transition to circular economy – it has become an important competitive factor – and a vital parameter in securing their company’s future. Thus 96% of respondents believe that “the circular economy is important for their company’s future success”.

“The circular economy is a key element of the necessary route towards a sustainable society. At AkzoNobel, we use circular principles to achieve radical resource efficiency and to design out negative externalities. This approach offers clear benefits for the environment, for our customers and for ourselves,” says AkzoNobel’s CEO, Thierry Vanlancker. AkzoNobel is a world leading manufacturer of coatings and chemicals.  

The greatest challenge right now is disruptive circular business models. Only 18% of the business leaders say that they are currently active and successful in the area of business model innovation.

This is supported by Markus Laubscher, a director of the Sustainability Department at Philips, a Netherlands based health technology company: “We see the value and future potential of the circular economy. This is why we endeavor to ‘disrupt ourselves’ – rather than be disrupted by others. Over the next decade the circular economy will become even more important for all businesses,” he says.

It demands a complete disruption

Despite the increased commitment to the circular agenda, it is not all good news. Looking at the state of affairs, companies are still facing great challenges implementing the transition. The survey clearly confirms, what the many reports, studies and papers on circular economy have been saying for several years – that the transformation is far from simple – and that even the frontrunners are far from being completely circular.

The greatest challenge right now is disruptive circular business models. Only 18% of the business leaders say that they are currently active and successful in the area of business model innovation – which by many is considered the most important and effective concept in circular economy. The reason for this is that it can change the entire life cycle of products.

“Process innovation is always tough to implement but we have been doing it for decades and have gained valuable experience. Product innovation requires new ways of thinking from designers and collaboration with new partners and suppliers and is thus more difficult. We are in the process incorporating circular ingredients into products, such as recycled and renewable content in plastic products and making spare parts available for repairs. In contrast, business model innovation is an even greater challenge. We are testing and piloting circular initiatives, but still struggle to find scalable solutions,” says Malin Nordin, Development Leader of Circular IKEA.

Michelin is one of the industrial incumbents that has come up with a truly disruptive business model to drastically employ circular principles across the entire life cycle. They have introduced a new business model, where they are not selling ‘tires as a product’ but selling ‘tires as a service’. This means that consumers pay per miles driven, and by employing digital sensors the condition of the tires are constantly monitored enabling Michelin to take care of every aspect of tire management, including “selection, mounting, maintenance, assistance, retreading and end-of-life recycling.”

It allows them to move from being a product manufacturer to become a service provider with full control over products throughout their life cycles, and thus save large amounts of materials. The leasing models also encourage the company to produce more durable products.

The introduction of this business model has not been easy for the company – mainly because it demands a shift in consumer behavior, which is hard to push forward. “Because transportation customers are very price sensitive, Michelin has spent significant time educating them about the benefits of tires-as-a-service and by 2017 Michelin solutions managed the tires of more than 400,000 trucks in 18 countries,” the report concludes.