How can businesses profit from the circular economy?

By | April 9, 2013

Peter Hopkinson is Professor of Innovation and Environmental Strategy at Bradford University School of Management. He is Director of a new Centre for the Circular Economy and leads the academic partnership with the Ellen McArthur Foundation.

Image courtesy of social-i-media.co.uk

Image courtesy of social-i-media.co.uk

Attending a recent breakfast meeting at the World Economic Forum in Davos, to launch the second EMF/McKinsey report on the circular economy, I calculated that the annual revenues  of the companies present at the meeting was in the order of a 300 billion GBP.

McKinsey presented an overview of the report to the chairmen and CEOs of companies including BT, CISCO, SAB Miller and Desso.  They identified savings of USD 700 billion to be had from global consumer goods materials by adopting more ‘circular’ business practices across three areas of consumer products – food, packaging and clothing.   Questions at the end centred not on whether this was a possible way forward, but on how to do it and quickly.

So how to do it and quickly ?

Circular economyWell some of it is happening already. In fact certain features of a circular economy are long established and well known.  But in an era of cheap fossil fuels and resources, the attitude of a take-make-dump economy has come to dominate.

Historically, business models that have flourished have been based around take back, repair, remanufacture and re-use. Now at a time when the linear or throughput economic model is under increasing stress and a challenge to business as usual, we are witnessing a rediscovery and re-invention of business models.  These are fuelled by a combination  of  rising prices, economic downturn and that today’s products represent tomorrow’s resources at yesterday’s prices.

As an example a mobile phone contains many valuable resources including gold and platinum. Faced with rising commodity prices – why sell a phone and lose the materials and possibly the customer along the way?   Why not lease or rent it to retain control and ownership of the materials and at the same time forge a long term relationship with the customer?

Companies such as Marks and Spencer have cottoned on (no pun intended) with schwopping – the value of the materials in everyday clothing is valuable. Allowing a customer to bring back their items at some point in time, rather than throw them in the dustbin or leave languishing in the wardrobe, in return for a credit note against a future purchase, has proven remarkably successful.

The customer gains, the retailer recovers valuable material – and a customer – and by working with NGOs such as Oxfam, avoids the claim that the scheme is taking money away from charities.

Taking the ideas further, selling performance rather than product ownership, has been a clear business model in many business-to-business markets for some time.

Rolls Royce sell air miles rather than engines, for example, guaranteeing the airline engine performance for a given time period.

Image courtesy of en.wikipedia.org

Image courtesy of en.wikipedia.org

Remote monitoring and diagnostics allows  Rolls Royce to check the status of each engine and anticipate wear and tear and faults.  They can bring an engine in for remanufacture at an optimal location and time.

The airline gains from not having to manage or be liable for inventory and disposal – after all they are only interested in performance of the engines, not owning them. Rolls Royce benefits from closer relations to their clients, reduced stock holding, improved design (by having real time monitoring and fault finding diagnostics) and re-design of their global re-manufacturing facilities to reduce costs further.

A performance based model reduces the overall physical resource requirements and cycles the technical materials in far larger and longer term cycles than in the ownership model.

These and countless other examples form the basis for a newly designed and delivered six-week on-line executive education course created between Bradford University School of Management and the Ellen McArthur Foundation. The first cohort of 30 business participants, from companies such as Ricoh, BT, CISCO, National Grid, IfixIT, B&Q has just concluded.

Designed to provide an overview of the circular economy, including business opportunities and challenges, course participants discussed and argued about the findings from the McKinsey study.  They looked at who is doing what as well as the challenges and changes needed to accelerate more circular economy practices. Some of the key challenges related to technology lock-in, short-term accounting metrics and measures, customer perceptions and perverse regulations.

What was interesting, however, was the real progress and innovation taking place in many companies, creating business benefits, profitability as well as wider positive social and environmental   outcomes.  The companies are taking these ideas forward through the EMF Circular Economy 100 Club, meeting in London at the end of April to scope a two year innovation project.

The next cohort for this Exec Ed course starts on 10 May 2013 with 60 participants.  If you are interested in the course, the circular economy big picture,the CE100 club or the forthcoming DL MBA on circular economy then please contact Dr Emma Griffiths, e.j.griffiths@bradford.ac.uk.

What should this second cohort be looking at as the most urgent priority?

About Peter Hopkinson

Peter Hopkinson is professor of Innovation and environmental Strategy at the Bradford School of Management, Director of the University's new Sustainable Enterprise Centre and academic director of the partnership programme with the Ellen Macarthur Foundation.

Specialties

+        Circular economy
+        Business models for radical resource productivity
+        Organisational change and adaptation to external environmental issues

13 thoughts on “How can businesses profit from the circular economy?

  1. Pingback: There is no point in training people to be ‘ethical’ – everyone has Machiavellian streaks | Bradford Management Thinking Blog

  2. Pingback: How should a top business school celebrate its 50th anniversary? | Bradford Management Thinking Blog

  3. Pingback: What’s in a name? How our new re:centre “re:branded” sustainability | Bradford Management Thinking Blog

  4. Pingback: Can money run out? Why we need to re:think world finances | Bradford Management Thinking Blog

  5. Pingback: Why Do a Masters? Five things To Think About! | Bradford Management Thinking Blog

  6. Pingback: Social media platforms are encouraging a more ‘circular’ approach to business | Bradford Management Thinking Blog

  7. Abhishek Saxena

    I want to highlight here the challenges come in the implementation of circular economy as follows:-

    A: – The major waste is coming from middle class people mainly of Asia continent and these middle class people will increase tremendously in the nearer future. Tremendous economic growth of these countries is one of the main reasons behind it.

    Solution: -You cannot put barricades on economic growth but what we can do is to preach the concept & benefits of circular economy amongst these middle class people by adjoining hands with government, NGOs, local authorities. The better these people understand the circular economy the better results will come out.

    B:-The materials/parts manufacturers are the organisations that use the basic materials, biological or technical, to turn them into the parts used to form the product. Now to regulate circular economy they have to change the process of their manufacturing .They now have to manufacture the material that can be easily recycle. This requires a modification in their techniques, methodology, & machinery.

    Solution: -We have to generate funds that can support the changes with the help of UNO, NATO & other organizations. We have to generate faith in the manufacturers mind that this economy will not hinder his profits & perks. Beside it will help him to run his business for long duration.

    C:-In today’s scenario it is quite difficult to unite all nations for a single cause. Every nation has its own understanding towards circular economy. This can be explaining with an example; A is term as a nation which is well developed & also has a full control on its resources & population. B on the other hand is a developing nation with majority is of middle class & is on the verge of depleting its natural resources. But the demands here are increasing continuously because it is a hub of worlds most used technology at present. When there is a demand there should be supply. So to maximizing its profit A will supply the resources to B but ultimately these resources are depleting from the earth.

    Solution: -All the nations have to unite together on a single platform. This can be done by dividing the total countries in the world in to small groups. Now each group is assign to manufacture a particular list of recycle products. Thus it will help to maintain the dependency on each other & thus also contribute in circular economy.

    D: – We in current world mainly depend on non-renewable resources for energy. These resources are nearly to their extinction in the nearer future. We have to shift our focus & dependability towards the renewable resources. A lot of efforts have been made this field by extracting energy from sunlight, wind, water & other renewable resources. But still we are not able to find the processes or resources that will completely be called as replica to the non-renewable.

    Solution: -Combined efforts require in exploring more renewable sources. The use of renewable resources should be promoted more strategically & wisely among the main users. To enhance the existing techniques & process involved in extracting energy from renewable resources.

    E:-It will require a tremendous efforts & huge amount of money to establish a market based on recycle products. Thus it will automatically reflect the cost of the final product. Initially users have to bear more amount of money as comparison to the current. This might not attract the user on first sight.

    Solution: -We have to convince each & every user that although he has to invest more but in return this investment will be beneficial for him in long run & thus in this way he is also performing his duties towards the environment & nature.

    F: – Money/currency war is a big problem in current economic condition. This is because some countries are enriched with resources while some are not. Disequilibrium of the natural distribution leads to a conflict situation. If we have to establish a market concentrating mainly on the usage of recycle products & materials, we have to develop an economy based on price equality.

    Solution: -It will be difficult to establish a non-competitive environment all around. But it can be possible by introducing BARTER SYSTEM once again. Divide the countries into groups & assign each group a list of materials or products they can manufacture. These material s or products are purely recyclable. Now there will be exchanging of these recycle products & thus we can put an end on currency war.

  8. Pingback: Is there a place for heart and soul in a business strategy? | Bradford Management Thinking Blog

  9. Pingback: Should sustainability be part of your business strategy? | Bradford Management Thinking Blog

  10. Pingback: Top 10 blog topics for business and academics – from our own Bradford Thinking blog (part one) | Bradford Management Thinking Blog

  11. Pingback: How can businesses innovate beyond obsolescence? | Bradford Management Thinking Blog

  12. Pingback: Setting sail for a sustainable economy | Bradford Management Thinking Blog

  13. Pingback: Circular economy is about growth, not guilt | Bradford Management Thinking Blog

Comments are closed.