Strategic Dimension of Circularity

Ira Hanf
Senior Advisor, Head of Digital Sustainability Services
February 26, 2021
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Circular economy and sustainable development goals are today on the agenda of most companies across industries and geographies. Simultaneously, many companies are struggling to understand what they mean for their business and how to address the changing demand. While the transformation towards a circular and more sustainable world will require companies to change both their operations as well as their products, services, and business model fundamentally, very often, activities are limited to the operational, short-term level. Acknowledging and addressing the strategic dimension of circularity will be critical to achieving this level of change across and beyond the organization.

The Disruptive Storm

“The times they are a-changing,” as Bob Dylan sang in 1964. And that’s true today as it was more than 50 years ago. Climate change is forcing us to re-think the way we live, work, eat, travel and many other things. For companies this means a Disruptive Storm is forming across all sectors and geographies. In the coming years we will see major changes across all aspects of business:

  • Customer demand is shifting towards digital and sustainable products and services. Forcing companies to reconsider how products and services are produced and delivered to meet the new / changed demand.
  • Regulators are putting in place stricter regulation that mandate sustainable principles and practices. Forcing companies in B2B and B2C to re-consider their full value chain from sourcing through supply chain to the final sale to the end user and beyond.
  • Investors are considering sustainability metrics as key part of their investment decisions. Forcing companies that are stock listed or are looking for financing to showcase that they are able to produce their products and provide their services in a sustainable way.
  • New competition emerges at an increasing pace enabled by rapidly evolving technology. Forcing companies to accelerate the adoption of new technologies, operating and business model to address competitive pressures and close potential openings for new players.
Figure 1: The disruptive storm of circularity

Change will come! Are you ready?

Given these trends that we already see forming and developing, it will not be a question if but rather when they will unfold their full power and impact companies across geographies and industries. The shift towards a circular and more sustainable world will be a major strategic game changer that companies need to address and that will shake many to their core.

While bridging solutions will be available such as CO2 trading and carbon offsetting, companies that do not address the core of the matter will be at a financial and competitive disadvantage compared to companies that will be able to make the change indue time. Imagine a company that pays to offset their ecological footprint while their competitor successfully reduced their ecological footprint by implementing targeted initiatives. The former company in this case will need to price the cost into their products and services while the later one can leverage price and brand advantages.

Make no mistake, going circular is not easy, specifically for companies and industries that have been operating in a strictly linear model before. And there will never be a right time to make drastic changes that will impact or even completely alter the way the company operates. Now is as good as yesterday or tomorrow but keep in mind, the sooner you start, the sooner you can get the benefits of your hard work.

Circularity will impact all parts of the organization

As mentioned, the shift towards circularity will impact the whole organization from the strategic to the operational level. To weather this storm, companies and organizations need to ready themselves to act fast across all major areas of the organization.

  • Products & services must be designed for circularity, as 80% of environmental pollution and 90% of manufacturing costs are the result of decisions taken at the product design stage.1
  • Operations must consider circularity in the core, optimizing end-to-end operations incl. sourcing, supply chain, production, logistics etc. Furthermore, as circularity requires a functioning ecosystem, the operating model of the organization needs to be changed and expanded to include key operational elements of the broader ecosystem.
  • Business Model needs to be renewed and enhanced to consider the full lifecycle of a product and service and with that needs to expand beyond the traditional considerations of e.g. a sell or rent model into the broader ecosystem context.

Circular economy is a team sport. For companies not used to working in an open ecosystem it requires major change and adoption. Building an active, functioning ecosystem that can support the full lifecycle of products and services to close the loop is essential to be successful in the new normal. Furthermore, understanding and managing the underlying resource and data streams within the broader ecosystem is critical.

Figure 2: Circular economy considerations across the organization

At the intersection of strategy, design, technology, and operations

To harvest the full benefits that a shift towards a circular business has to offer, a company needs to engage a wide array of capabilities. Very often these capabilities are in different departments in the organization that seldom talk to each other let alone develop a holistic approach from the strategic and operational perspective.

  • Strategy: To enable a successful transformation, circularity
  • must be a key element of the company strategy. Companies such as Schneider Electric, Lassila & Tikanoja and YIT havegone that path and have defined their respective companies as circular economy companies in the context of their strategy.
  • Design: At the core of the shift towards a circular business and operating model is a circular design that takes into consideration key characteristics such as longevity, maintainability, reparability, compatibility, upgradability, dismantlability and recyclability.
  • Technology: Technologies such as AI, blockchain, IoT
    and others will play a critical role in enabling new, circular solutions e.g. by extending the lifecycle of products through predictive maintenance or by making the sharing of resources easier and more effective.
  • Operations: At the core of a circular business is a circular operating model, supply chain and production. While many of the key decisions are made during the design phase,
    the operations need to strongly consider e.g. energy and resource efficiency.

While bringing these elements together and operating them in a holistic approach is not easy, it though represents a key requirement in the development of new, circular business and operating model. This is specifically true, as the interrelationbetween them are critical while not always easy to identify and manage.

Figure 3: Required capabilities to succeed in a circular world

The Journey

Deciding to become a circular company is one thing, actually embarking on the journey towards becoming one is another. Once circularity has become a vital element of the company strategy, it takes a dedicated effort to enable the organization to embrace this new corporate identity element. We have identified seven main steps, but every company will have a slightly different starting point and path.

Figure 4: The circular transformation journey

1. Interest: To make sure the organization is on board with the new path to circularity, it is critical to explain to employees and key stakeholders why this move is beneficial for them and the organization. This is to raise interest in learning more and taking first steps.

2. Awareness: Once an initial interest has been raised it is important to provide people with enough information to build awareness what circularity means in the respective area of responsibility of an individual in the organization. While most of the organization will be able to operate with a basic understanding, the leadership should be able to lead the discussion inside and outside the company and therefore requires a deeper understanding.

3. Plan: To translate interest and awareness to concrete actions, a holistic while pragmatic plan needs to be defined in close cooperation between leadership, employees, key stakeholders and ecosystem partners.

4. Motivate & Enable: Now if you have a plan but no tools to execute it the plan will not carry you far. Therefore, once the plan is in place employees need to be equipped with the right tools and capabilities while making sure incentive models and success measurements reflect the new circularity focus.

5. Act: Now the time has come to deliver to the plan. Take concrete actions starting from the initial experiments and small-scale activities and then scaling successful initiatives across the organization and ecosystem.

6. Impact: While taking action, the achieved impact needs to be measured and mapped against set objectives, success criteria and key results to enable a rapid iteration of actions and required adjustments.

7. Repeat & Adjust: Finally, after the cycle has been completed, it is critical to collect the learnings to sharpen the plan, tools and capabilities for the next round of circular actions.

While the above outlined steps follow a chronological sequence, it is important to understand that there will be iteration cycles within and between steps.

Getting started

The first step is always the most difficult. And as the transformation towards a circular business will not happen overnight there are some rather simple initial steps every organization can take to understand and evaluate what this significant shift towards circularity means. Based on our experience following a rapid exploration model with three fast paced sprints will provide a good basis for companies to understand the opportunities, challenges and actions required.

Figure 5: Rapid Circular Economy Exploration
  • Sprint 0 focuses on understanding the current state and developing clear objectives and priorities for the circular transformation journey while identifying key stakeholder, customers, and partners.
  • Sprint 1 outlines clear, concrete circular opportunities that can be addressed within the organization and the broader ecosystem. At the same time a circular vision and strategy is defined that clearly describes the value for the organization.The vision, strategy and concrete circular opportunities can be shared with employees, customers, key stakeholders, and partners to raise interest and awareness.
  • Sprint 2 translates the vision, strategy and circular opportunities into a concrete, actionable roadmap that takes into consideration capability gaps that need to be addressed and concrete results that need to be achieved.

The outlined rapid circular exploration approach generates fast results within a short period of time by utilizing co-creation methods.

Conclusion

With regulatory initiatives like the EU plastics directive and the EU Green Deal progressing even in times of the corona crisis, B2B and B2C customers rapidly shifting their demand towards more sustainable products, services and solutions, investors adjusting their investing criteria to include criteria related to sustainability and circularity of the investment target and new, innovative companies utilizing digital technology and other means to provide clean, scalable alternatives to existing products and services, it is clear that change will happen. As a matter of fact it is happening in front of our very eyes.

Companies need to decide today if they want to be part of the sustainable, circular future or if they want to end up as a footnote of history like examples that have missed the industrial or the digital wave.

At Taival we help companies seize the opportunities and address the threats that the next big transformational wave will present. We can help you see circularity and sustainability from a strategic, holistic perspective considering strategy, design, technology, and operations to develop new products and services while fundamentally transforming operations. The time to act is now!

Reach out to the author Ira Hanf.

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