Institutional impacts on circular business model

Introduction

1. Background and actualization

The changes necessary for creating a more circular system require a fundamental
system change. Business model innovation contributes to this change because the
purpose of firms is re-conceptualized, and the perception of value is redefined.
Business models link radical and systemic sustainable innovations with business
strategies at the operational level (Boons, 2013), by structuring the application of the
principles of the circular economy. How this works is explained below by discussing
what a business model is, what type of business models have been identified and how
a business can design their own circular business model (Poppo, 2002).

Business models

A business model can be described as the blueprint of a firms business logic and
describes the rational of how companies create, deliver and capture value (Sthl,
2014). It is not a strategy but a tool which gives insight in how a firm does business,
and can be used for analysis, comparison, performance assessment, management,
communication and innovation. A business model shows assumptions on customers,
revenue streams, costs, competitors and user needs, and shows what business logic is
used (Smpls, 2014).
A widely accepted way to structure a business model has been developed by
Osterwalder et. al (2005), who identified nine building blocks that describe how a
business creates value. By filling in these nine building blocks of the so called
business model canvas essential parts of a business model are defined and the
viability and completeness can be determined (see figure 1).
Figure 1: Business Model Canvas, Osterwalder, Pigneur & Tucci, 2005

Nancy Bocken et. al have identified that sustainable business models can be
categorized in eight different business model archetypes. Archetypes are defined as
groups based on the extent to which business model is focus on more technical, social
or organizational approach of sustainability (Poppo, 2002).

Figure 2: Business model Archetypes Bocken, Short, Rana & Evans, 2014
 Business model based on circular principles

Based on the six powers that enable value creation in a circular economy and
observations in practice, IMSA has identified 19 existing business models, which are
presented (Smpls, 2014) as follows:

1. Short cycle
Pay per Use: pay one time to use product or service
Repair: Product life extension by repair services (Poppo, 2002)
Waste reduction: Reduce waste in the production process
Sharing platforms: Products and services are shared among customers
Progressive purchase: Pay periodically small amounts before purchase

2. Long cycle
Performance based contracting: Long term contract and responsibility with
producer
Take back management: Incentive to ensure product gets back to producer
Next life sales: Products gets a next life
Refurbish & Resell: Product gets a next life after adjustments
3. Cascades
Upcycle: Materials are reused and its value is upgraded
Recycle and repurpose: Materials are cascaded and reused, recycled or disposed
Collaborative production: Cooperation in the production value chain leading to
closing material loops
4. Pure cycles
Cradle-to-cradle: Product redesign to 100% closed material loops
Circular sourcing: Only sourcing circular products or materials
5. Dematerialized services
Physical to virtual: Shifting physical activity to virtual activity
Subscription based rental: Against low periodic fee consumers can use a product or
service
6. Produce on demand
Produce on order: Only producing when demand is present
3D printing: Using 3D printing to produce what is needed
Customer vote (design): Making customers vote what to make (Sthl, 2014)

1.2 Research problem

Denmark has started its journey towards the circular economy and one of the first
steps was the project initiated and performed by Ellen MacArthur Foundation, around
creating a toolkit for policymakers, by describing a methodology for actors acting in a
circular economy (Poppo, 2002).
When circular economy grows, the demand for organizations that facilitate the
circulation of materials increases. According to Accenture the following five business
models offer opportunities (Smpls, 2014).
Circular Supplies: Provides renewable energy, bio based or fully recyclable input
materials to replace single lifecycle inputs (Poppo, 2002)
Resource Recovery: Recover useful resources/ energy out of disposed products
Product life extension: Extend working lifecycle of products and components by
repairing, upgrading and reselling.
Sharing platforms: Enable increased utilization rate of products by making possible
shared use/access/ownership.
Product as a service: Offer product access and retain ownership to internalize benefits
of circular resource productivity.

The project looks at the circular economy opportunity from a country and policymaker
perspective, and aims to provide policymakers with an actionable toolkit to help
accelerate the transition towards the circular economy. Part of the project was to
perform a case study on Denmark which identified circular economy opportunitities,
barriers and policy options in the country. The result showed that introducing the
circular economy principles to the Danish economy would (Poppo, 2002):

Increase GDP by 0.8-1.4 %

Reduce consumption of selected resources by up to 50%
Reduce Danish carbon footprint by 3-7 %
Create 7000-13000 jobs by 2035

The results were based on the following five sectors, which covers 25% of the
economy:
Food and beverage
Construction and real estate
Machinery
Plastic packging
Hospitals

1.3 Research question and objectives

In order to apply the suggested circular business models, companies should be

able to identify what type of business model fits best with their organization
and will be most promising. A circular business model scan can be used to
identify what opportunities are present for the current business. The Value Hill
structures all stadia where possible opportunities for business model innovation
are present (Smpls, 2014).
The focal point of the research is how institutions influence the development of
circular business model in a circular economy, having evidence from Danish
circular economy.
 To further guide our research, the following research questions will be
answered:

1) How institutional conditions affect the development of circular business model (CBM)?
2) What are the motivations of developing CBM ?
3) What underpins distinctive capabilities for the success of circular business model?
4) What are the major challenges of circular business model and why they seem to fail or loose
in the market?