Innovative Business Models Enabling the Circular Economy
The shift to the circular economy requires companies to rethink more than just their use of renewable energy, toxic chemicals, and resource footprint to capitalize on the benefits the circular economy offers. It requires a redesign and adoption of innovative business models based on dematerialization, longevity, remanufacturing, refurbishment, capacity sharing, and eventual recycling.
Accenture, a global management consulting, technology services and outsourcing company, has identified five circular business models (see chart below) companies can leverage – singly or in combination – to generate resource productivity improvements in innovative ways that also cut costs, generate revenue, and enhance customer value and differentiation. Let’s take a closer look at these models and some of the corporate leaders who are on the forefront of the transition to the circular economy.
1. CIRCULAR SUPPLY-CHAIN
The Circular Supply-Chain model is particularly relevant for companies dealing with scarce commodities, in which scarce resources are replaced with fully renewable, recyclable or biodegradable resource inputs.Royal DSM has developed cellulosic bio-ethanol, in which agricultural residue (baled corn cobs, husk, leaves, and stalk) is converted into renewable fuel. The cellulosic bio-ethanol created a new source of revenue for DSM, while reducing emissions, creating jobs, and strengthening national energy security.
2. RECOVERY & RECYCLING
The Recovery & Recycling model leverages technological innovations and capabilities to recover and reuse resource outputs that eliminates material leakage and maximizes economic value. Examples include closed loop recycling, industrial symbiosis, and Cradle-to-Cradle® designs, whereby waste materials are re-processed into new resources. Walt Disney World Resort sends food waste – including grease, cooking oils, and table scraps – from select restaurants in its complex to a nearby 5.4 MW anaerobic digestion facility owned and operated by Harvest Power. The organic waste is converted into renewable biogas (a combination of carbon dioxide and methane) to generate electricity, with the remaining solid material processed into fertilizer. The energy generated is used to help power Central Florida, including Walt Disney Resort’s hotels and theme parks.
3. PRODUCT LIFE-EXTENSION
The Product Life-Extension model helps companies extend the lifecycle of their products and assets to ensure they remain economically useful. Material that would otherwise be wasted is maintained or even improved, such as through remanufacturing, repairing, upgrading, or re-marketing. By extending the lifespan of the product for as long as possible, companies can keep material out of the landfill and discover new sources of revenue. Over the past 40 years, Caterpillar’s remanufacturing activity, through its Reman Program, has focused on returning components at end of life to same as new condition or quality that reduces costs, waste, greenhouse gas emissions, and need for raw inputs.
4. SHARING PLATFORM
The Sharing Platform model is centered on the sharing of products and assets that have a low ownership or utilization rate. This is particularly attractive in developed economies in which a typical car is used 5-10 percent of the time and up to 80 percent of goods stored in a typical home are used only once per month. Companies that leverage this model can maximize the use of the products they sell, enhance productivity and value creation, and create new relationships and business opportunities. Examples of the sharing economy abound, including transportation (Lyft, Turo, BlaBlaCar), lodging (Airbnb), and neighbors helping neighbors (TaskRabbit, NeighborGoods).
5. PRODUCT AS A SERVICE
Through the Product as a Service model, customers use products through a lease or pay-for-use arrangement versus the conventional buy-to-own approach. This model is attractive for companies that have high operational costs and ability to manage maintenance of that service and recapture residual value at the end of life. Philips sells lighting as a service in which they aim to reach more customers by retaining ownership of the lights and equipment so customers do not have to pay the upfront costs of installation. Philips also ensures the sound environmental management of their products by taking them back at the appropriate time for recycling or upgrading.
Accelerating and scaling up of the circular economy on a global level will require a combination of business models like these, technological advancements and innovation, and collective action across different stakeholders, industries, and geographies. That’s the reason we are partnering with Ecova on The Circular Economy in Action, a business delegation tour on November 9-10 in Seattle. Join us for on-site tours, peer-to-peer networking, and deep dive discussions on how the circular economy can deliver new business value.
With the world rapidly changing, resources becoming more scarce and expensive, and consumer preferences and expectations shifting, there is no time like today to capitalize on the transition to the circular economy – an opportunity worth in excess of $1 trillion for the global economy.