7 minutes to read Making the transition from a linear to a circular business model has gone from being a nice-to-have to business critical. Organisations that stick stubbornly to a traditional linear economic model are taking a big risk. The good news is that transitioning your company to a circular business model is definitely doable. And, for industrial and consumer goods enterprises, offers huge potential and opportunities, including higher margins and long-term certainty. But, it means establishing new ecosystems, developing the right strategy, and, most importantly, it requires perseverance. We’ve developed a science-based guide that features concrete actions, helps you find your bearings, and successfully guides you through the five phases of transformation. Don’t be a late adopter – become a first mover and exploit the potential of the circular economy for your business. Download the guide Paradigm shift from a linear to a circular economy The idea behind circular economy is to use resources more efficiently, extend product life spans, and realise closed-loop material and energy flows, minimising waste and pollution. This is in direct contrast to the linear ‘take-make-waste’ economy, predicated on goods produced from primary raw materials and destined to become waste at the end of their useful life. The circular economy is based on three principles: Eliminating waste and pollution Products must be designed to avoid producing pollution and ending up as waste at the end of their life. This requires businesses to rethink product development so that end-of-life waste is viewed as a design fault and is eliminated. The objective is to realise resource management systems that place emphasis on preserving the value of raw materials and create zero-waste products and systems. Circulating products and materials at their highest value The focus should be on keeping materials in use, either as products, components, or raw materials, in order to increase the proportion of resources that are recirculated. This is achieved by using highly durable products, extending life spans, and recycling products and materials for future use. Overall, the goal is to reduce raw material consumption per product. This principle is about much more than just recycling, and it’s important not to equate the two. More on sustainable product design Regenerating natural systems The goal is to regenerate natural systems by moving away from a ‘take-make-waste’ economy and safely recirculating natural nutrients through renewable energy. This protects the environment, boosts biodiversity, and reduces greenhouse gas emissions. Scientific definition of a circular economy: “A circular economy is an industrial system that is restorative or regenerative by intention and design […]. It replaces the ‘end... “A circular economy is an industrial system that is restorative or regenerative by intention and design […]. It replaces the ‘end-of-life’ concept with restoration, shifts towards the use of renewable energy, eliminates the use of toxic chemicals, which impair reuse, and aims for the elimination of waste through the superior design of materials, products, systems, and, within this, business models." – Source What’s driving the transition to a circular economy? In 2023, it took the global population just 214 days to consume the amount of biological resources regenerated in one year. Overexploitation and shortages of resources are an existential threat to society and business. For companies, there are four main risks: Price fluctuations resulting from unexpected variability in raw material or energy prices. Supply problems due to supply chain disruption resulting from bottlenecks and conflicts over raw material extraction. Reputational damage as a result of a failure to pivot towards sustainability. New legislation such as the EU Green Deal may degrade the value of goods produced in conventional non-circular systems. Opportunities, not risks! What are the benefits of circularity? The environmental benefits of circularity are obvious. But for businesses the real interest lies in its economic potential – which, it must be said, is huge. With the global economy proving increasingly volatile and global markets undergoing major shifts, enterprises benefit from: Products becoming an outsourced materials store Recovering raw materials from returned or reused products reduces risks from volatility in raw material prices and geopolitical disruption to supply chains, minimising overall costs to the business. More loyal customers and enhanced competitiveness New business models such as Product-as-a-Service – in which a company does not sell a product but offers it as a service and the customer pays a regular subscription fee for the use of the product – intensify customer loyalty as they require regular interaction with the customer and long-term contractual ties. By minimising the environmental impact of your products and enhancing social responsibility, you’ll also attract new, green-minded customers. Higher margins and recurring revenues A combination of new revenue streams and investment in circular design can reduce costs, boosting margins. Plus, new business models like product-as-a-service deliver recurring revenues because customers pay a regular subscription fee. The stumbling blocks – what’s stopping enterprises from taking this route? Despite the opportunities outlined above, many businesses are persisting with a linear business model, making only marginal changes in the direction of recycling. The reasons for this are varied. In addition to structural hurdles, such as the absence of a legal framework that encourages circularity, little expertise within the workforce, and/or the failure of the market and the public sector to incentivise circularity, there are also internal factors impeding the drive towards circularity. Many businesses believe that it’s impossible to manufacture their products for circularity. Others are deterred by the high levels of up-front investment required or worried about the technical complexity of realising circularity. Circular business models – a five step roadmap to success For established businesses in particular, the transition to a circular business model is a complex process. In contrast to start-ups, they start out with an existing business model and established products. The often radical transformation process requires strategic thinking and perseverance across five different areas:• strategy • business models (new or old) • the creation of ecosystems • internal and external processes • established and new products Based on these areas, we have identified five phases of transformation that businesses have to go through to realise a circular business model. These five phases are not linear and do not take place in isolation. Rather, they are interdependent, extend across several levels of transformation, and need to be continuously reviewed and refined: Phase 1: Initiating and identifying Phase 1: Initiating and identifying The first phase involves developing a sustainability strategy which delivers an enduring competitive advantage and identifies quick wins. The key questions to answer in this phase are: What’s the status quo? How is the business positioned in terms of CSR and ESG at present? What are the priorities? Which areas are most important to internal and external stakeholders? Phase 2: Understanding and planning Phase 2: Understanding and planning The second phase involves taking key steps to develop a circularity vision. This forms the basis for realising and building an appropriate ecosystem. The key questions to explore in this phase are: What changes are needed from the perspective of the enterprise? What are the environmental and social impacts of the existing business model and products? What internal resources, expertises and technologies are needed to support the transformation? Phase 3: Exploring and refining Phase 3: Exploring and refining The third phase involves generating ideas, exploring the circular business ecosystem, and refining and communicating your circularity vision. The key questions to think about in this phase are: What sort of ecosystem and business environment does the enterprise operate in? What sort of ecosystem and business environment patterns or frameworks for circular business models does the organisation operate in? What are the opportunities and how can they be realised? Phase 4: Designing and piloting Phase 4: Designing and piloting The focus in the fourth phase is on forming a circular ecosystem, developing and piloting new business models, and prioritising iterative product development. The key questions to consider in this phase are: Can the newly developed ideas and models be refined further? Who can the business partner with to realise a long-term circular business model and build the business ecosystem? Phase 5: Optimising and scaling Phase 5: Optimising and scaling The fifth and final phase of this transformation involves embedding and scaling circularity at every level. The enterprise will optimise and scale business models and develop new products, services, and offerings. The key questions to answer in this phase are: How do we get management to buy in to the transformation? How can we overcome global barriers to the transition to a circular business model using new methods, rather than falling back on old ways of doing things? How Zühlke can help Getting your bearings and identifying the opportunities: Zühlke works with you to help you find your bearings and set priorities... Getting your bearings and identifying the opportunities: Zühlke works with you to help you find your bearings and set priorities for your business’ sustainability strategy. We evaluate the current situation using tools such as life cycle assessment, support companies in bridging the gap between their sustainability goals and customer needs, and identify business opportunities for sustainable innovation. Transformation and scaling: Together, we develop a strategic roadmap to help you realise a successful sustainability transformation in your enterprise. This enables you to reduce costs, expand into new customer segments, realise new revenue streams, and quickly create value with new, sustainable products and business models. Sustainable ecosystem innovation: As an expert in sustainable product and business model development, Zühlke helps industrial and consumer goods businesses to create sustainable ecosystems. Together, we answer the question of who the business can partner with to realise a long-term circular business model and build a new business ecosystem. Are you looking to get started on your sustainability transformation? Take your first step by downloading the complete guide here: Explore sustainability at Zühlke: get our Corporate Responsibility Report To the report
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