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Six ways to build circular business models

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Six ways to build circular business models

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This is a slide deck about different types of business models that align with circular economy principles.

Feel free to use the slides in your teaching, consulting, or in any other purposes. If you need the original ppt file, feel free to contact us!

This is a slide deck about different types of business models that align with circular economy principles.

Feel free to use the slides in your teaching, consulting, or in any other purposes. If you need the original ppt file, feel free to contact us!

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Six ways to build circular business models

  1. 1. SIX WAYS TO BUILD CIRCULAR BUSINESS MODELS Nancy M.P. Bocken Professor of Sustainable Business Maastricht University, The Netherlands Paavo Ritala Professor of Strategy and Innovation LUT University, Finland
  2. 2. Slide deck/ teaching note • This teaching note accompanying the following paper: • Bocken, N. and Ritala, P. (2022). Six ways to build circular business models. • Journal of Business Strategy, 43(3), 184-192. • Full paper link: https://doi.org/10.1108/JBS-11-2020-0258 • The creative commons license applies: you can use and build on it by giving credit to the original work using the above citation, and/ or, the other specific citations per slide
  3. 3. An inefficient system to manage resources 1. Dependent on high turnover of products and fast-paced consumption 2. Suffering from decreasing product lifetimes and high levels of waste 3. Leading to a loss of value embedded in products and materials Linear Economy
  4. 4. Circular Economy Extending the useful life of products (including avoiding overconsumption) Recycling (at material level e.g., primary, secondary) Minimising resource use per product (e.g., efficiencies in manufacturing, light weighting products) Source: Bocken, N.M.P., de Pauw, I., van der Grinten, B., Bakker, C. 2016. Product design and business model strategies for a circular economy. J. Industrial & Production Engineering, 32 (1), 67-81.
  5. 5. Circular business models Achterberg, Elisa, Jeroen Hinfelaar, and Nancy MP Bocken. 2016. "Master Circular Business with the Value Hill." White paper Current linear economy Circular economy
  6. 6. Circular Business Models • Circular business models focus on delivering superior customer value propositions while slowing resource loops by providing products that last longer (e.g. through premium pricing, services), closing resource loops, by recycling materials post-multiple consumer (re)uses, and narrowing the loop by using less material per product and in manufacturing processes
  7. 7. Open Innovation • Open innovation refers to openness of the innovation outcome or the innovation process • Innovation outcome: those that benefit from the innovation might involve a limited or broad open audience - Circular economy’ example: iFixit, whose community consists of people who help each other ‘fix stuff’ for free with tips and tricks • Innovation process: might be open or closed, thus involving a limited or large number of innovators and stakeholders - Circular economy’ example: circular hackathons’, where the process of innovating is open to all - In the following framework the focus is on the process aspect of open innovation Huizingh, E. K. (2011). Open innovation: State of the art and future perspectives. Technovation, 31(1), 2-9.
  8. 8. Foundations of the framework • Resource strategy refers to the key aim of the circular business model, which we divide in three aspects, based on narrowing, closing loops or slowing resource loops (Bocken et al., 2016). • Innovation strategy refers to the classic division between “closed” and “open” innovation, and in the context of our study, to the strategic openness of the business model in question (Chesbrough & Appleyard, 2007). Bocken, N.M.P., de Pauw, I., van der Grinten, B., Bakker, C. 2016. Product design and business model strategies for a circular economy. J. Industrial & Production Engineering, 32 (1), 67-81. Chesbrough, H. W., & Appleyard, M. M. (2007). Open innovation and strategy. California management review, 50(1), 57-76.
  9. 9. Circular business model strategy framework
  10. 10. Example: Open-narrowing Value proposition (example): Reduce waste and resources in design and production processes Value creation & delivery: Reduce cost and negative impact through new technologies and processes in collaboration with suppliers, customers and others Value capture logic: Save cost and resources Open-narrowing Source: https://www.theconsumergoodsforum.com/wp- content/uploads/2018/04/Environmental-Sustainability-Refrigeration-Case- Study-Booklet-2019.pdf
  11. 11. Example: Closed-narrowing Value proposition (example): Reduce waste and resources in design and production processes Value creation & delivery: Reduce cost and negative impact through internal technology, process and design innovations Value capture logic: Save cost and resources Closed-narrowing Source: https://www.businessinsider.nl/apple-cut-down-on- plastic-use-by-making-2-simple-changes-to-iphone-packaging- 2017-10?international=true&r=US.
  12. 12. Example: Open-slowing Value proposition (example): Reuse resources to broaden the offerings to the customer (e.g. vintage, second-hand) Value creation & delivery: Create value by connecting internal and external resource flows via generative models Value capture logic: Increase the number of transactions in an ecosystem via reuse of products Open-slowing Source: https://www.ifixit.com
  13. 13. Example: Closed-slowing Value proposition (example): High quality products with high customer value Value creation & delivery: Long lasting design, repair services; Create more value from less resources Value capture logic: Charging of price premium through achieving quality leadership and customer loyalty; create value from the same product multiple times Closed-slowing Source: https://www.vitsoe.com/eu/about/ethos
  14. 14. Example: Open-closing Value proposition (example): A circular offering which involves lower environmental footprint and resource burden Value creation & delivery: Combine resource flows from external ecosystem into customer offerings Value capture logic: Lower the cost of resources used in customer offerings, improve brand/corporate image Open-closing Source: https://net-works.com/about-net-works/
  15. 15. Example: Closed-closing Value proposition (example): Connect with customers by using, recovering, and maintaining post-consumer materials Value creation & delivery: Increase customer retention and repurchases via take-back plans Value capture logic: Resource efficiency, improve brand and reputation, reduce cost for materials Closed-closing Source: https://mudjeans.eu/pages/our-mission-about-us
  16. 16. Guiding questions for practitioners Narrowing loops Slowing loops Closing loops Open business model innovation Which of our current ecosystem partners are ready to improve their resource efficiency together with us? Are there new horizontal or vertical collaborations that we can initiate to boost resource and material efficiency? Can we create digital platforms or partner with platform providers that allow reusing and sharing of valuable resources to customers? What is our own added value to such ecosystems? Can we build on an existing customer base or do we need to attract new customers? Are there existing producers of leftover material that is valuable but currently underutilized? Can we create external ecosystems that collect such materials? Can we bundle these materials into competitive customer value propositions? Closed business model innovation How can we minimize resource usage in internal processes? Are we able to build on those resource savings into concrete cost savings? Are we able communicate those efficiencies to customers and business partners? Can we create a well-functioning repair or refurishment organization to serve existing customers better? Are we able to take a risk of long warranties? Can we charge premium prices from customers in exchange for product longevity? Can we identify valuable ways to take back products from our existing customers and use it as an input in the same or different products? Can we design a win-win take- back or repurchase scheme with our customers? Can we use closed-loop process effectively in marketing and branding?
  17. 17. Concluding thoughts Circular Business Model Strategy Framework includes six alternative circular business model innovation approaches • The approaches are built on the premises of narrowing, closing or slowing loops as well as closed or open strategies for innovation • These approaches are not mutually exclusive: one company can engage into multiple of these at the same time (e.g. Patagonia is a good example of focusing on most of these) Closed approaches enable firms to maintain control over the coordination of the whole circular process, leading to less uncertainty and better control over the value capture. • Yet, few process are truly ‘closed’ in the circular economy and at the very least involve some collaborations and innovations with direct customers and suppliers Open approaches enable building “circular economy ecosystems” that facilitate material reuse and innovation among producers, users, and complementors
  18. 18. Author contacts* ritala@lut.fi Twitter: @PaavoRitala LinkedIn: https://www.linkedin.com/in/ paavo-ritala-6475a31/ Maastricht Sustainability Institute (MSI) Nancy.Bocken@ maastrichtuniversity.nl Twitter: @NancyBocken LinkedIn: https://www.linkedin.com/in/ nancy-bocken-b7384614/ *Let us know if you need an editable Powerpoint-set of these slides
  19. 19. Appendix This appendix includes the editable versions of the figures of our paper (please cite the original paper when using further modified version). Bocken, N. and Ritala, P. (2022). Six ways to build circular business models. Journal of Business Strategy, 43(3), 184-192. Maastricht Sustainability Institute (MSI)
  20. 20. Value proposition (example): Connect with customers by using, recovering, and maintaining post- consumer materials Value creation & delivery: Increase customer retention and repurchases via take-back plans Value capture logic: Resource efficiency, improve brand and reputation, reduce cost for materials Innovation strategy Resource strategy Open Closed Closing loops Slowing loops Value proposition (example): A circular offering which involves lower environmental footprint and resource burden Value creation & delivery: Combine resource flows from external ecosystem into customer offerings Value capture logic: Lower the cost of resources used in customer offerings, improve brand/corporate image Value proposition (example): High quality products with high customer value Value creation & delivery: Long lasting design, repair services; Create more value from less resources Value capture logic: Charging of price premium through achieving quality leadership and customer loyalty Value proposition (example): Reuse resources to broaden the offerings to the customer (e.g. vintage, second-hand) Value creation & delivery: Create value by connecting internal and external resource flows via generative models Value capture logic: Increase the number of transactions in an ecosystem via reuse of products Narrowing loops Value proposition (example): Reduce waste and resources in design and production processes Value creation & delivery: Reduce cost and negative impact through new technologies and processes in collaboration with suppliers, customers and others Value capture logic: Save cost and resources Value proposition (example): Reduce waste and resources in design and production processes Value creation & delivery: Reduce cost and negative impact through internal technology, process and design innovations Value capture logic: Save cost and resources Open-narrowing Open-slowing Open-closing Closed-narrowing Closed-slowing Closed-closing
  21. 21. Narrowing loops Slowing loops Closing loops Open business model innovation Which of our current ecosystem partners are ready to improve their resource efficiency together with us? Are there new horizontal or vertical collaborations that we can initiate to boost resource and material efficiency? Can we create digital platforms or partner with platform providers that allow reusing and sharing of valuable resources to customers? What is our own added value to such ecosystems? Can we build on an existing customer base or do we need to attract new customers? Are there existing producers of leftover material that is valuable but currently underutilized? Can we create external ecosystems that collect such materials? Can we bundle these materials into competitive customer value propositions? Closed business model innovation How can we minimize resource usage in internal processes? Are we able to build on those resource savings into concrete cost savings? Are we able communicate those efficiencies to customers and business partners? Can we create a well- functioning repair or refurishment organization to serve existing customers better? Are we able to take a risk of long warranties? Can we charge premium prices from customers in exchange for product longevity? Can we identify valuable ways to take back products from our existing customers and use it as an input in the same or different products? Can we design a win-win take- back or repurchase scheme with our customers? Can we use closed-loop process effectively in marketing and branding?

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