Ever since the Industrial Revolution, man has our used natural resources in the same way: take, make and throw away. The emergence of the ‘circular economy’ is gradually changing the way many businesses work. How will it impact on your business?
Becoming a ‘Circular’ Business
Most of us have become better at using resources more efficiently. We have also seen a growth in ‘second-hand’ markets and recycling rates are improving. However, most enterprises still use linear business models designed to generate a return on investment by converting resources into products and services.
In contrast a ‘’circular’ business model views the resources used in their products and services as assets rather than inputs and their customers as users rather than buyers. Circular business models are based on five main considerations:
- How can products be designed with asset recovery in mind?
- How can products be developed that meet consumer demand without wasting assets?
- How can materials be resources in ‘regenerative loops’ rather than ‘linear flows’?
- How can revenue models be developed that protect value up and down the chain?
- How customers be encouraged to engage and cooperate with service providers?
Here are five examples of business models which are being used as an alternative to the linear business model.
Model 1: Products as Services
In products as services, businesses see themselves as service providers leasing their products rather than selling them. Often this model can help to the development of a ‘stickier’ customer relationships and increased upsell opportunities. Some smart phone providers have adopted this model whereby you can rent the latest phone for a year and upgrade it periodically at no or low cost. Other more unlikely products can be consumed as a service such as carpets, for example, Desso.
Desso supplies carpets to commercial customers. Instead of conventionally selling their product, they lease their carpet to users, retaining ownership of the product. At the end of the useful life, the carpet is collected and 100% recycled in to new carpet which is leased again.
Exponential Training’s technology support supplier Arden Group has recently introduced a new concept called, Device as a Service (DaaS). Instead of committing to a capital outlay to purchase laptops, smart phones or other IT equipment, it can be provided as a service with monthly payments.
Model 2: Product Transformation
Not all products can be reconditioned or refurbished, but most have components that have a value, and which can be retrieved or harvested and re-used. With the right design and remanufacturing capabilities, they can be put together to form new products.
Reman Parts has transformed its business model based on the use of spare parts in the plumbing and heating industry. It now provides high quality, reliable remanufactured boiler parts to the plumbing and heating Industry at a lower price than newly manufactured. It mission is to reduce boiler maintenance cost and minimize the carbon footprint at the same time.
Model 3: Next Life Sales
Taking Model 2 still further, ‘next life materials and products’ work when an organisation is able to efficiently recover and recondition its products after use and then put the same products into the market to earn a second or third income. The Tata Motors Assured is more than a second-hand car dealership. Cars are handpicked and refurbished in Tata workshops and then undergo a certification process. Customers are even offered financing options and warranty.
Model 4: Innovation in Recycling
Innovation in recycling technology is rapidly evolving and enabling the production of high-quality products with a significant impact on sustainability performance. One example is the way Starbucks is recycling of coffee grounds waste. Starbucks is already converting thousands of tons of its waste coffee grounds and food into everyday products by using bacteria to generate succinic acid, which can then be used in a range of products from detergents to bio-plastics and medicines.
Model 5: Collaborative Consumption
Finally, social media exchange platforms are rapidly transforming industries by collaborative consumption. For example, Airbnb matches people seeking vacation rentals with hosts who have space and it now has over 200,000 listings in 30K cities. Another example is ThredUP which offers ‘like-new’ clothing at up to 90% off the estimated retail price.
At Exponential Training, our digitalisation strategy has seen us moving towards a circular business model. We have recycled and up-graded many of old paper-based resources into a digital format; our filing cabinets have been passed onto other businesses; we use Uber when travelling overseas; our CRM system, Infusionsoft is available as a subscription-based service; and we have redesigned many of our services as 100 per cent on-line services.
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