By decoupling “growth and environment”, the circular economy imposes a new economic, social and cultural model. To discuss about it, SUEZ opens the pages of open_resource magazine to two international experts: Peter Lacy, Managing Director for Growth, Strategy and Sustainability at Accenture and Navi Radjou, theoretician of frugal innovation.
Peter Lacy, Managing Director for Growth, Strategy and Sustainability at Accenture © Accenture
The birth of a new business model
The concept of a “circular economy” is establishing itself as a promising alternative for businesses in order to reconcile their need for growth with environmental objectives and the pressure of resource constraints. But the concept is not only about waste and recycling, it is about moving from efficiency to effectiveness, forging deeper bonds with consumers that go beyond the point of sale and creating new opportunities for growth.
Circularity: a business opportunity
Powered by new business models, technologies and capabilities, the circular economy presents a huge opportunity for companies to create competitive advantage. In fact, Accenture research (1), undertaken with the support of the World Economic Forum (WEF), indicates a $4.5 trillion reward for circular economy business models by 2030. The number of organisations that are beginning to adopt these practices to grab a slice of this opportunity is growing. From start-ups to multinationals, from public sector organisations to Silicon Valley whizz kids, from Texas to Tokyo, examples abound.
Imagine creating a $10 billion business renting property without using any energy, metal or other resources to build a single house? Increasing a company’s gross profit by 50% while reducing material use by 90%, all by recovering and remanufacturing used components? How about unlocking $1 billion in previously wasted value by transforming material management in manufacturing? Or using a country’s underutilised biomass resources to tap into an $80 billion market for advanced chemicals and energy? Global industry leaders and innovative start-ups, are already beginning to generate substantial profits by seizing these opportunities.
Basing success on technology and sustainability
The transition to a circular economy may take time and effort and that is why a proactive strategy for how and when to make the move is critical. Eliminating the very concept of waste is the key, as much as recognising that everything has value. That is a huge mind shift for many large organisations. They have to think about creating less waste, reducing the underutilisation of natural resources, products and assets inherent in traditional, linear business models. It is more than a tall order, but success stories are multiplying. Pioneers like Nike, are rapidly transitioning towards their closed-loop vision with a bold target for fiscal year 2020: Zero waste from contract footwear manufacturing going to landfill or incineration without energy recovery. To date, 71% of all Nike footwear and apparel incorporates recycled materials, using 29 high-performance closed-loop materials made from factory scraps. Outdoor apparel retailer Patagonia began a Worn Wear program, which encourages product life extension, repair and reuse of Patagonia and non-Patagonia products. The company has recycled 95 tons of customers’ old clothing since 2005. Their facility in the USA can repair up to 45,000 garments per year.
Technology company Johnson Controls has reached a 99% recycling rate for conventional batteries in North America, Europe and Brazil, while its sold batteries are now made up of 80% recycled materials. New business models that support the emerging circular economy need technology to thrive. For instance, 80% of the cost of producing and distributing a CD can be saved thanks to streaming music through cloud-based platforms. In fact, delivering a digital format substantially reduces waste. In other words, the circular economy will be a digital revolution or it won’t be a revolution at all.
And it’s not just large corporations who are making progress. The Scottish Government’s circular economy strategy, “Making Things Last”, identifies four priority areas: reducing food waste and growing the bio-economy, reuse of energy infrastructure, waste reduction, and remanufacturing to deliver economic, environmental and social benefits. To date, £180 million in business savings have been realised through energy, waste and material reuse. This includes saving 20,000 tons of valuable raw materials and diverting 32,000 tons of waste from landfill per year to facilitate their recycling and/or recovery.
As more companies and governments participate in the circular economy, online marketplaces are facilitating rapid progress. For instance, Liquidity Services network of e-commerce marketplaces make many kinds of assets more accessible and easily exchangeable. By focusing on the consumer, the company succeeded in creating a model that reduces waste of scarce resources. Until now, more than 2.5 billion pounds of metal, 125 million pounds of electronics, 50 million pounds of rubber, paper or even cardboard have been recycled through the network.
Digital disruptors have successfully found new ways of giving customers, more—better, faster and cheaper Companies like Airbnb have been able to harness technology to optimise the use of valuable assets and achieve outstanding growth. And as the Fourth Industrial Revolution of digital, biological and physical technologies progresses, so companies can leverage technological innovation to increase productivity and growth whilst at the same time becoming more sustainable.
Making the shift needs compliance
The opportunity may be clear, but making the shift is not that easy. Most companies are simply not built to automatically capitalise on the opportunities offered by the circular economy. Their strategies, structures, operations and supply chains are deeply rooted in the traditional linear approach to growth. While there is considerable urgency to start making the move to circular business models, many companies still wrestle with how to get started.
For organisations that want to start on the road to ‘circularity’, the following steps are necessary:
- identify and concentrate on the actual opportunity (as opposed to the noise around the theory of the circular economy);
- rethink how value is created and delivered to customers;
- put in place a focused set of new capabilities (stop trying to implement the ‘perfect’ circular setup, at least initially);
- invest in technology to make value chains circular;
- time the balance between capturing near-term, low-hanging fruit and engendering long-term, large-scale change.
It’s time for companies to get a head start in order to enjoy a circular advantage. Transitioning to the circular economy may be the biggest revolution and opportunity for how we organise our global economy in 250 years. Let’s not waste the opportunity.