Find a Circular Strategy to Fit Your Business Model

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Find a Circular Strategy to Fit Your Business Model

By Samsurin Welch and Khaled Soufani | MIT Sloan Management Review | June 03, 2024

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Roughly half of global emissions are linked to the production and consumption of goods such as food, packaging, buildings, and textiles.   Accelerating decarbonization will require that we rethink the materials and services sourced from suppliers, the distribution and use of products by customers, and what happens to products at end of life.

That’s where circular models come into focus. They aim to optimize the use of material resources in organizations and thus help reduce carbon emissions and mitigate strain on natural systems.   Despite compelling advantages, circular businesses remain uncommon, largely due to the challenge of identifying and operationalizing suitable models that align with a firm’s overall strategy and capabilities.  Based on their research, the authors explain four different routes to circularity, and key considerations for effectively implementing them. 

1. Extend Product Lifespan.  Reuse, resale, repair, or refurbishment are among the use-longer tactics that help companies maximize the usable life of products, reducing both waste and consumption of new resources. The challenge for companies that pursue this approach is preserving the benefits customers derive from newly manufactured products. Some ways to operationalize this include the following:  design products for longevity, establish repair and refurbishment capabilities, and leverage data and digitalization.
2. Reclaim and Regenerate Resources.  For companies following the use-again approach to capture value from waste materials, the distinction between technical and biological resources is key.   The two require different approaches.  So remanufacture or recycle technical materials, turn waste into revenue, and design products with recycling in mind, and establish reverse logistics systems and partnerships.
3. Maximize Product Use.  In many cases, consumers may not feel the need to own a product. Companies can sell access rather than ownership; sharing, renting, and service-based approaches can replace product sales. These models boost circularity by increasing asset utilization and aligning incentives to encourage customers to use less, use longer, and use again. The use-differently approach also can broaden access to products that might otherwise be out of reach for some consumers.  For this, the organizations need to: design services based on customer jobs-to-be-done, leverage digital platforms, and align incentives.
4. Minimize Resource Use.  Figuring out how to use less of any resource should always be a priority when conservation is the objective. With this goal, organizations can think broadly about how they can minimize the use of energy, materials, and water in operations.  Organizations need to focus on:  efficiency, Design out waste, and tap data analytics.

Numerous opportunities are available for companies to embed circularity into their products and operations. While approaches may vary, the research has found that successful initiatives pay attention to the following factors:  seek strategic fit, committed leadership focusing on circularity, combined models, offer a compelling value proposition, seek value-based collaborations and partnerships, and pursue the journey of learning and iteration.

3 key takeaways from the article

1. Roughly half of global emissions are linked to the production and consumption of goods such as food, packaging, buildings, and textiles.   Accelerating decarbonization will require that we rethink the materials and services sourced from suppliers, the distribution and use of products by customers, and what happens to products at end of life.  That’s where circular models come into focus. 
2. The aim of circular models is to optimize the use of material resources in organizations, and thus help reduce carbon emissions and mitigate strain on natural systems.  The practical principles underlying circular business models can be stated as four simple goals: extend product lifespan, reclaim and regenerate resources, maximize product use, and minimize resource use.
3. Numerous opportunities are available for companies to embed circularity into their products and operations. While approaches may vary, the research has found that successful initiatives pay attention to the following factors:  seek strategic fit, committed leadership focusing on circularity, combined models, offer a compelling value proposition, seek value-based collaborations and partnerships, and pursue the journey of learning and iteration.

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Topics:  Sustainable Development, Circularity