Eight core themes that influence your company’s circular business model transition

The adoption of circular business models by companies is heavily influenced by cultural factors. Societal culture, driven by changing public opinion and pressure on matters such as circular economy, strongly urges businesses to make change. Industry culture also plays a vital role, particularly if the industry lacks circular economy awareness and understanding.

Most industries and societies still operate with a primarily linear mindset, making the adoption of circular business models difficult. Cultural factors, including trust and compatibility issues between supply chain partners, can also hinder the transition.

Changes in customer and client attitudes and behaviour, as well as the willingness of employees and managers to engage in circular practices, also affect a company’s readiness to transition. This means that education and knowledge play key roles in strengthening public awareness of the potential of circular solutions, in turn leading to an increase in the adoption of circular business models.

Regulatory barriers can be a major hindrance for companies wanting to adopt circular business models. In particular, the lack of defined targets and circularity-oriented frameworks coupled with unproductive policies and complex regulations hinder companies from adoption.

Lobbying groups for circular economy can play an important role in regulatory change. On the other hand, regulatory drivers can significantly push companies toward circular business models, showing how crucial its prioritisation is for governments. The fact that regulation plays a dual role both as a barrier and driver clearly suggests that initiating change at governmental and policy levels could help increase the adoption of circular business models.

Currently, the market demand for circular solutions is increasing across industries, driving companies towards circular business models to keep up with market demand. This could be achieved, for example, by attempting to create a consumer market and build loyalty in new consumer segments.

As demand grows, so too does competition. But for those who adopt circular practices, there is less uncertainty, making it easier to compete. Embracing circular business models can help companies stand out as leaders in the circular transition.

A company’s strategy, and in particular its focus on circular economy and circular value creation, determines if it can productively use circular practices in its business model. Although adopting a circular business model can position company as a leader in circular economy, there is a risk of cannibalisation of its own market share – i.e. that it might compete with its own existing products, resulting in reduced sales. Using novel performance indicator that measure overall organizational success on balanced ecological, social, and financial performance can help overcome this and assist in driving the adoption of circular business models.

A major barrier to the adoption of circular business models is the lack of access to financial resources and supporting financing models. Circular business model adoption requires significant up-front investments, continuous management, and operation planning processes, so having financial support from external parties and top management is crucial.

Although circular business models can prove costly to implement, companies are still reporting them as an opportunity to gain profitability and economic benefit for the company and society, such as job creation and boosting local economy. Perhaps one of the reasons adoption rates remain slow is because the business case and economic benefits remain difficult to envision. To strengthen the business case, access to financial resources can be increased through collaborative practices such as public–private partnerships, impact investing, and crowdfunding. The initial high investment costs can be reduced by sharing assets and resources within the value chain.

To establish effective circular business models, all players within the supply chain need to work together, so open communication is key. Companies opting for collaboration might potentially face challenges, in particular when it comes to competition. To be successful, they will need to combine their resources and competences rather than competing. To deal with the complexity, companies must develop trust and aligned incentives. This way, stakeholders to collaborate constructively, sharing knowledge, resources, and risks.

When a company adopts a circular business model, it can increase complexity throughout the supply chain. However, the switch can also improve logistics, which can prove a to be a strong adoption incentive for companies. Some companies report that a lack of organizational resources, from expertise to facilities, e.g., human resources, knowledge, and facilities) obstructs their transfer to a circular business model. So, it is vital for companies to understand the tangible and intangible resources needed to make the change.

Knowledge is a crucial determining factor in the adoption of circular business models. There is a particularly strong need for training in skills associated with circular economy, as well as know-how in the execution of circular activities and practices such as how to repair and remanufacture products after sale. In some cases, there is also a lack of technology to facilitate recycling, optimisation, or remanufacturing. In essence, the general lack of understanding of circular economy and its strategic and operational implications is an ongoing issue that continues to slow down the transition toward circular business models.

Throughout this overview, we explore eight core themes and the factors within each that either help or hinder companies in adopting circular business models.

To increase adoption, companies must understand the specific drivers and barriers that affect them and develop strategies to create a successful circular business model, in turn assisting the global transition toward a circular economy.

We recommend companies wishing to adopt circular business models to:

1. Use this overview to map out and critically analyse which drivers and barriers that influence their adoption journey.
2. Focus on addressing the factors within their control, such as internal challenges that can be influenced or worked through rather than external ones like regulatory demands or market uncertainties.
3. Develop strategies and tactics aimed to tackle the specific drivers and barriers, resulting in a highly targeted approach.

If your company is interested in adopting circular business models, read the full article developed by Assmann, Rosati & Morioka (2023) here.

References:

Assmann, I. R., Rosati, F., & Morioka, S. N. (2023). Determinants of circular business model adoption—A systematic literature review. Business Strategy and the Environment,1–21. https://onlinelibrary.wiley.com/doi/epdf/10.1002/bse.3470

Circle Economy. (2023). The Circularity Gap Report. https://www.circularity-gap.world/2023

Çetin, S., De Wolf, C., & Bocken, N. (2021). Circular digital built environment: An emerging framework. Sustainability (Switzerland), 13 (11), 6348. https://doi.org/10.3390/su13116348