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.
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 ?
Well 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.
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, firstname.lastname@example.org.
What should this second cohort be looking at as the most urgent priority?