Joining the Circular Economy? Don’t Go It Alone

In the coming Circular Economy, no organisation will be an island.

In the Circular Economy, products and their components will be repaired, re-used, refurbished, remanufactured, and recycled. Hazardous waste will be kept to a bare minimum. And new business models will give companies the incentives they’ll need to make these big changes, benefitting both the bottom line and the environment.

That will be a sharp contrast with today’s ‘linear’ economy, in which companies focus primarily on up-front product sales. Linear companies do not create benefits throughout a product’s full use cycle. Nor do their business models provide incentives for extending product life spans.

To succeed in tomorrow’s Circular Economy, companies won’t be able to make these changes alone. The Circular Economy demands the creation of integrated ecosystems. There, organisations will create, capture and deliver sustainable value. And they’ll do so not alone, but in collaboration with others.

Massive Scalability Ahead

Why can’t a single organisation go ‘circular’ on its own? Because the Circular Economy represents a systems-level change. That involves massive scalability—so massive, few organisations would be able to achieve it on their own.

These new ‘circular’ activities, all required at massive scale, will fall under four main headings:

• Technology: Speed activity; create and enhance product visibility; automate decision-making.
  
• Ecosystem partnerships: Help organisations bridge their knowledge and capability gaps; create shared value.
  
• Circular measurement: Demonstrate progress to stakeholders; maintain buy-in from organisations; generate shared visibility across the ecosystem.
  
• Business models: Provide organizations and stakeholders attractive financial incentives for transitioning to ‘circular’ operations.
  

A Collaborative Community

To unlock the potential gains of the Circular Economy, each industry’s entire value chain will form a loop characterized by high levels of collaboration and transparency across all players.

This transformation will be fostered and initiated by one or more value-chain orchestrators, organisations that establish a direction and common framework, foster collaboration and lay the foundation for transparency. The transition will also require changes to each player’s operating model.

In a fully circular value chain, players form a loop of highly interconnected activities. The focus of the value chain shifts from product production and sales, driven by the OEM and its suppliers, to product usage and the customer’s personal needs.

Digitisation Required

A business ecosystem can operate efficiently only if fully digitised. Advanced technology is needed to foster collaboration across geographies and organizations, which is central to realising a global circular economy.

Without digital technology, achieving the outcomes of the Circular Economy would be difficult if not impossible. The globalized recycled component and materials systems required for a Circular Economy are simply too complex to run otherwise.

A wide range of technologies will come into play. As illustrated below the circular economy requires new digital capabilities within all the five components of a digital business technology platform: Internal IT systems to optimize business processes and decision making; tools to facilitate business ecosystem collaboration with up- and downstream suppliers, service providers, and recycling companies; new digital services and touchpoints to customers to e.g. give insight, support decisions to prolonging products lifetime and end-of-life options; connected products and components for e.g. remote maintenance and understanding of usage characteristics like running-hours and environmental operating condition; business intelligence tools to combine data from the different sources and facilitate circular business models, increase performance understanding, and support circular design decisions. 

Fortunately, materials used in products by one industry can later be reused for products in other industries. For this reason, a single organisation’s own focused digitalization will be insufficient. Instead, industries will act as integrated parts of the global circular economy.

Building a Digital Backbone

The Circular Economy will also require the creation of open and shared digital backbones.

Currently, most Circular Economy initiatives are individual projects focused on physical materials and resources. However, to scale these solutions globally and across industries, players will need coherent digital foundations.

A digital backbone will facilitate a business ecosystem that is collaborative, informed and adjustable. It will also mitigate complexity, an important issue as the number of interconnections among both organisations and entire industries increase dramatically.

Done right, this Circular Economy digital backbone will provide the digital foundational for new business models, reducing cost, time and risk.

The circular economy will offer new opportunities for providers of logistics. That will be the focus of the next blog post in this series…