In a recent webinar, Cutter Consortium Senior Consultant Mike Rosen explored the circular economy concept, its broad impact on business and operating models, and the role of architects in facilitating the shift to a circular economy. According to Rosen, we are moving away from a linear economy that focuses on producing goods that are mainly used and then discarded, and moving towards a circular economy which has the goal of designing out waste and optimizing products for a cycle of disassembly and reuse. In this Advisor, we share the Q&A session that followed. Perhaps Mike’s advice will spark some new ideas on how your organization can participate in the circular economy.
Q: Considering that most companies have operated on a linear model for such a long time, what do you think the trigger or inflection point must be to break with this model?
A: That’s the million-dollar question. When you look at companies that have been successful with the circular economy, there's some combination of public relations, increased costs of waste, increased regulations, and reduced costs or added revenue that are a result of moving from a linear to a circular model. In the case of Caterpillar, a company that manufactures construction and mining equipment, industrial turbines, and diesel-electric locomotives, they make good money manufacturing and selling equipment. Caterpillar has adopted a circular model for a combination of reasons, including the cost to get rid of equipment, the desire to maintain a positive reputation, and the need to meet consumer demand—and you might not think construction professionals care about equitability, but they do.
Moving to a circular model also requires leadership that has insight and vision. I like to compare it to the US auto industry in the 1980s. The auto industry was getting its lunch eaten, primarily by Japanese car manufacturers. The industry was not able to change, even though it knew what was needed. American cars struggled to compete until that generation of leadership retired and there was new leadership in the auto industry. Now, American cars are as good as anybody else's cars. So, it might be as much of a generational change, as it is something else.
Q: What first steps would you recommend to convince a stakeholder of a classic linear value chain manufacturing company to rethink their business models to participate in the circular economy? How would you kick this off?
A: If you want to move toward a more circular economy model, I recommend you think about your lifecycle. You collect resources from someplace. You manufacture or source parts. You manufacture or source products, and you sell those products. Now you should look at each of those steps and think about how you can remanufacture products. What would be the change in your design? How would you dispose of your end product? What if you used different materials at the beginning? Would that change what you must dispose of at the end? Would that give you opportunities for reuse? Start with the value cycle shown in Figure 1 and try to lay out your product from material to end of life and look for opportunities to improve the cycle. Then evaluate your model, maybe using the business model canvas (or something like) that to see what's desirable, what's feasible, and what's viable. Then start to attack the things that have the biggest bang for the buck.
Q: What existing structures can be leveraged for the new operating model?
A: If an organization wants to move from its current set of products to delivering products as a service, and have better engagement with its customers, it can use the same methods for analysis and design of the operating model. Start by asking a few questions. What constructs does it have in that scenario? Does it already have good customer relationships and the ability to collect information? Can it just enhance that process to gather better feedback about the reuse and remanufacturability of those products? Does it have good supply chain management practices in place that it can easily adapt to more sustainable product sourcing and better material sourcing? Companies need to execute an entire range of business processes. Some existing structures will be easy to leverage such as AI, supply chain management, and customer management. Other capabilities will require fundamental shifts, such as new suppliers, materials, and markets.
Q: How would a retailer of products play in a circular economy? For example, a wireless service provider.
A: There are three ways a retailer of products could play in the circular economy. They could play in the upstream cycle, the downstream cycle, or both. Certainly, a retailer can make shifts to more sustainable energy and other consumption models, and also to more sustainable resources. In addition, they can shift to a product and service model rather than a product model, where they own the product and focus on its management and their relationship with the customer. (Philips lighting is a good example.) They need to think about the resources they are using and the energy they are consuming during the creation of the product and service. Could they do a better job of creating less waste, using more renewable resources, and avoiding toxic waste? How might they improve the manufacture of that product and service?
Once the product and service is produced, the dual cycle must be addressed. What value is the consumer getting from that product and how do you lengthen that value cycle? Also, how does the producer interact with that customer to provide more value and ensure that the product can be reused, remanufactured, and recycled? In terms of a wireless service provider, there's not a lot of waste in their product. It's not going into a landfill. But the provider does have a lot of interaction with the consumer. There may be opportunities to operate or to participate in a platform economy with other circular economy participants, using the wireless platform as a mechanism to encourage the reuse of products and services and the collection of information.
Q: How does the platform business model influence acceleration toward the circular economy? What impact does Right to Repair legislation and product CO2 traceability have on the circular economy?
A: The platform business model can support many different use cases of the circular business model. Many organizations don’t have the ability or the desire to take on everything that goes into the circular economy. But if a platform is created around some subset of products and services for the circularity of those products and services, organizations have the opportunity to contribute to the circular model. A company may provide raw materials, or in the case of the wireless service provider, become a platform for communications. Or perhaps the company focuses on customer service, or recycling, or it provides the shared resources across some network. The platform business model gives organizations the chance to participate in the circular business model by focusing on what they are good at without having to own the whole cycle.