In a recent webinar, Cutter Fellow William Ulrich and Giovanni Traverso explored the circular economy, the strategic challenges it presents, and business architecture’s role in transitioning an organization into becoming a player in the sustainable economy while concurrently meeting other essential business objectives.
The goal of the circular economy is to maintain assets as long as possible in the economic ecosystem. Materials used in production must be recycled, components must be repaired or refurbished (remade), and products must be reused. Organizations require a roadmap to achieve these goals; one that blends actions and milestones with bottom-line results. Business architecture provides the means where seemingly disconnected goals and objectives can be integrated under a common, holistic set of strategic initiatives through a coordinated, ecosystem-wide roadmap.
This Advisor shares the Q&A session that followed the presentation. We hope the advice will spark some new ideas for how your organization can participate in the circular economy.
Q: Is there any benchmark data that provides insights on what technologies/best industry trends are being used to deliver a capability?
Ulrich: That would vary broadly. The technologies that we’re talking about here in terms of delivering capabilities are the software systems that you built, and there are a lot of best practices around that. In the perfect world, you will have one software service per capability. This is very difficult to achieve, obviously, but it’s a goal. You can make that more granular, going to a level-one capability that may be more of a composite level. Or you can go down to levels three or four of a capability, and that’s going to give you more of a micro service structure.
So it’s more about what are the best practices for deriving and building software and designing data, and that’s a whole different discussion. (I’m doing a webinar at the end of the year in December on using business architecture for data architecture.) It’s basically the software systems you build and design that are delivering capabilities. There’s no magic tool out there that’s going to do all your work, so it’s essentially the software systems you design and build that are aligned to the capabilities and the information you need to use.
Q: Is a circular economy applicable to other industries besides manufacturing?
Traverso: Yes, certainly. As we show in this webinar, circular economy is a concept of generally sharing or reusing assets. So whatever the asset may be, anywhere there is a pattern that allows you to get to the value of something repetitively and iteratively (e.g., room occupancy, in the case of Airbnb), that is a place where you can apply the concepts of a circular economy.
Q: What is the difference between value stream and value cycle, and why are they crucial?
Ulrich: The value stream is independent of any particular use case or context, so any given organization has a fixed number of value streams. It depends on how many you define, but essentially there’s a set number. They can be customer-triggered, externally triggered, partner-triggered, and many internally triggered, but the number is not that large. It might be as many as 30, depending on your business model or models — anywhere between 20 and maybe up to 30 something. Those are basically generic and are views on how work is being done to deliver value for certain customers.
Traverso: Value cycles envelope value streams. Value streams typically have one triggering stakeholder to whom the value stream delivers the value in some form. What makes a circular economy special is that because it’s a cycle, there is not one stakeholder that controls and commands all the others. There are several stakeholders, and each one pursues his own or her own motivations and values. The art of combining a value cycle is putting together value streams in such a way that, with the continuity, you can carry on the action without having one single stakeholder that commands the other.
Q: What is the role business architects might take in strategy execution to help synchronize a transition to the circular economy with a broader set of business strategies?
Ulrich: The business architecture allows you to see the organization as a whole. As you look at your strategic planning and you produce your actionable business objectives from that strategic planning, the business architects can look at the cross-impacts of the full set of those strategic objectives on the value streams — the capabilities, the information, the stakeholders, the business units, possibly products, and maybe policy impacts and so on. As they’re viewing all that, they can look at the circular economy–related objectives. For example, one of those might be reducing and reusing waste. They can then also look at a strategic business objective that might focus on reducing production costs in their manufacturing cycle.
Those two things — one coming from circular economy, more sustainability; one coming from more of a cost-reduction, asset-utilization perspective. Those are probably going to be pointing at some of the same value streams, certainly some of the same capabilities, and some of the same information. So you would show that you can achieve multiple objectives by investing in these value streams, these capabilities, these information concepts, and stakeholders, and then you can trace that out to the systems that are impacted or that maybe need to be developed — the business units and so forth. You can put together a cohesive, well-aligned, synchronized investment that is driven as maybe one integrated investment across business units as opposed to multiple, possibly overlapping investments, which are a huge problem for strategy execution at organizations that can only see the world in silos and not as a holistic perspective.
Traverso: I would add that, generally, circular economy is associated with waste avoidance, so any opportunities for waste avoidance can become an opportunity to implement a circular economy — or some level of circularity. Business architecture is the ideal discipline to tackle the challenge because it can represent an entire ecosystem beyond the boundaries of single organizations. A value stream, for example, can start in one organization and cross several other organizations and be enabled by capabilities that are not necessarily owned by one single organization. Thanks to the introduction of the concepts of value carrier and value cycle, business architects can easily “connect the dots” within an ecosystem, see how a “waste” for a stakeholder can be regarded as an asset by another, discern what capabilities are needed in order to realize that, and consequently assess the relevant investments.
Ulrich: The Business Architecture Guild’s manufacturing reference model defines waste. It’s incorporated under material, so it’s managed in the same way as any other material in a manufacturing cycle. The idea is: how do we effectively reuse waste as it becomes available?
Q: In the innovative business model example, how does a value carrier concept align to representations within the business architecture, and why is this relevant?
Ulrich: One object that’s targeted and tied in is the vehicle, so that is an object we are tracing through its lifecycle. So one particular value cycle is to ensure that vehicle disposal is handled effectively or that the vehicle continues to get reused through multiple iterations. The object we’d be focusing on there is the object that’s transitioning through the value stream (i.e., the vehicle). It also might be in a response-to-incident or recover-from-incident value stream and also in the decommissioning-the-vehicle value stream. So, in all the different value streams, the value (the vehicle) is the same object that’s engaged or traveling or involved in all those different value streams, and there’s different value cycles that that object as a value carrier would be traveling through. And you would align those to the different value streams that would be doing the work.
Traverso: I would recall the butterfly diagram (see Figure 1). As you may remember, it is made by a set of multiple cycles nested or somehow related to each other. So, in this case, as Bill was saying, around the value carrier (which is the car in this case), you can build several different instances of a circular economy. One is just reusing the car or the reuse of parts, like we see implemented by Caterpillar.