Here Alisha Tuladhar from the University of Bath and Maya Fischhoff, the Network for Business Sustainability's Knowledge Manager, outline the four different ways that businesses can engage with the circular economy, and how they can make their choice. This was originally published on the Network for Business Sustainability blog.
If the circular economy is the destination, there are a number of ways to get there. And “SmartMan,” “TelcoPro,” “TelcoBasic,” and “MaintainOp4” provide models.
These are the names that researchers gave different companies in the European smartphone market. Researchers Erik Hansen (Johannes Kepler University) and Ferdinand Revellio (Leuphana University & Johannes Kepler University) spent four years looking at the strategies that different manufacturers and retailers used to become more circular. Their insights apply to multiple industries.[1]
Why move to a circular model? Many say that the circular economy is the future of sustainability. That’s because a circular economy provides ways to keep materials and products in use, by repairing, reusing, and finally recycling them. Used products don’t just become waste, as in the traditional “linear” economy, but a valuable resource.
The circular economy benefits society and the environment and creates new business opportunities.
Four Ways to Make Your Business More Circular
The researchers identified four strategies for engaging with the circular economy. These are “Make,” “Ally,” “Buy,” and “Do Nothing.” In other words, companies can (1) build internal capacity (“Make”), (2) “Ally” with organizations with circular expertise, (3) “Buy” circular services from third party contractors (outsource), or (4) “Do Nothing,” standing by while unrelated circular providers offer services to their customers.
These strategies represent different levels of investment in the circular economy. “Make” means full integration into the business model. “Ally” is still strategic, while “Buy” has a more compliance focus.
Different strategies also enable different kinds of circular activities. Advanced circular activities like repair and reuse require a company to be at the “Make or “Ally” stage, note the researchers. “You can hardly outsource a repair service through an arm’s length transaction as it is too complex and specific,” Revellio told NBS. “That’s in comparison to recycling, which is standardized."
This article will show what the different models look like and show the strategic value each offers from the circular economy.
Four Companies Show Ways to Engage with the Circular Economy
Here’s how four smartphone companies pursued the strategies for engagement: Make, Ally, Buy, and Do Nothing.
“Make”: SmartMan builds internal capacity
For SmartMan, a niche German smartphone manufacturer, the circular economy is a core competency and key to brand positioning.
Circular activities: SmartMan began by making their phones more repairable and offering reasonably-priced spare parts and in-house repair services. They extend the product lifetime through a strong user-product relationship: for instance, by supporting do-it-yourself repairs through online repair manuals. They implemented a first-of-its-kind deposit system to increase phone return rates. SmartMan remanufactures these phones and remarkets them to customers with lower performance requirements
SmartMan executes most circular economy activities internally but has hired a non-profit reverse logistics specialist to comply with European recycling regulation. SmartMan staff build internal capacity by participating in circular economy trainings and hiring circular specialists.
Strategic value: SmartMan’s emphasis on circularity and sustainability has become its core competency and unique selling proposition. The company also generates revenue through spare parts sales, in-house repair services, and remarketing activities, thus moving toward a product-service system.
“Ally”: TelcoPro makes strategic partnerships and equity investments
TelcoPro is one of the largest telecom operators in Germany and follows a circular strategy based on close relationships.
Circular activities: TelcoPro provides circular services such as maintenance, limited repair and refurbishment (e.g. if a screen is broken) and recycling. TelcoPro offers these services by drawing on a close-knit network of firms with expertise in electronics reuse, repair, recycling and reselling. TelcoPro has bought or invested in pioneering electronic maintenance/repair/recycling firms. The company also provides vouchers and discounts for returning used phones.
Strategic value: Providing these circular services meets customers’ demand and enhances customer loyalty. A customer with a broken screen can easily get it fixed, for example. The repair program is particularly well-received by customers and has helped the company increase its market share.
When TelcoPro began its circular efforts, departments with sales goals to meet worried about cannibalizing the company’s sales-first model. But by investing in firms doing circular work, TelcoPro created a strong business case for these activities, going beyond a reputation/CSR rationale. Circular activities now made financial sense, as they would safeguard TelcoPro’s market share and let it tap into new markets (e.g. selling refurbished phones).
The two companies described so far, SmartMan and TelcoPro, execute a wide range of circular economy activities, either in-house (“Make”) or through close partnerships (“Ally”). Shifting to the “Buy” and “Stand By” models of circular economy engagement, the range of activities drop and they occur farther away from the smartphone company.
“Buy”: TelcoBasic buys basic circular services from non-profits
Circular activities: TelcoBasic is a large German telecom operator. Its primary circular economy activity is collecting outdated mobile phones from users, on a donation basis, and paying a non-profit charity to take them. The non-profit recycles the phones and resells a small percentage. TelcoBasic has a basic contract with this recycling operator, rather than a deeper partnership.
Strategic value: This “buy” approach means limited circular engagement by the company. It is primarily a corporate social responsibility (CSR) initiative rather than a financial strategy. TelcoBasic improves its image by partnering with charities with a strong social and environmental reputation, and the charities benefit financially. TelcoBasic does reduce some of its recycling compliance costs by working with the charity.
“Do nothing”: Third parties fill the void
Some manufacturers or retailers don’t engage directly with the circular economy. They take a ‘sales first’ approach, focused on selling new phones. They’re still following a traditional business model of creating and disposing of products, without building in any circular activities themselves.
Ironically, this “do nothing” approach creates a gap that other companies have filled. Unrelated third-party companies have stepped in to provide the maintenance and repair services customers seek. These providers have no relationship to the manufacturers, and often struggle to find necessary spare parts or guidance on repairs.
Strategic value: In this situation, smartphone companies lose potential value from circular activities such as repair, reuse, reselling, and refurbishing. Customers are paying other companies to provide these services. Additionally, the smartphone companies miss out on information. The third-party companies often develop great insight into product durability and customer preferences.
Capture Circular Value for Your Company
The researchers’ core message: Nearly every company can profit from the circular economy, but you need to be in the right position. “Think about your position in the circular value chain, and whether you might want to realign your strategy” said Revellio. “Do you want to remain as a manufacturer or expand your area of influence?”
For a long time, the status quo has been Do Nothing. “Manufacturers had a laissez-faire posture regarding circularity of their products and services,” explained Revellio. “They saw no strategic value.”
But there’s now a trend toward the more ambitious approaches, “Make” and “Ally.” Companies are choosing to conduct circular economy activities in-house (also called vertical integration) or ally with partners. “More and more firms realize the strategic value behind circular activities,” explained Revellio, “especially the activities to prolong product lifetimes like repair and selling secondhand (reuse).”
If your company is in “Buy” (outsourcing) or “Do Nothing” mode, consider making the shift to “Ally” or “Make.” Change is definitely possible. For example, in the European smartphone market, Samsung has begun to offer a mobile repair bus that comes to customers’ houses and repairs phones on the spot. The circular economy is taking off, with opportunities for innovation, profit and positive environmental impact.
“The circular economy transition is coming,” notes Revellio. “Preparing for it now can increase your company’s piece of the circular pie.”
[1] The researchers studied the electronics industry as an example, but other industries – including packaging and automotive – show similar strategies. A follow-up article will provide more examples.
Read the article: Hansen, E.G. and Revellio, F., 2020. Circular value creation architectures: Make, ally, buy, or laissez‐faire. Journal of Industrial Ecology, 24(6), pp.1250-1273.
See NBS page for supplementary graphic.
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