Circular business model is a concept introduced to facilitate implementation of resource efficiency strategies in a circular economy with the objective to create environmental and economic value. As circular business models are receiving increasing attention among practitioners, policy makers, and researchers, numerous different understandings of the concept exist. Julia Nußholz has studied the key characteristics of circular business models through the perspective of resource efficiency strategies and business model innovation.
Interesting about circular business models is that it can be powerful concept to help successful adoption of circular strategies. Circular strategies are resource efficiency strategies that maintain the value of resources at the highest utility for as long as possible through closing product and material loops, e.g. repairing, remanufacturing or recycling material. If facilitated through business model innovation, circular strategies not only reduce environmental impacts, but also trigger practitioners to think outside the box. Circular strategies provide sources of innovation, and opportunities for creating and capturing added value for business stakeholders, such as customers and value chain partners.
Be aware – circular strategies are not always the right choice as these do not lead to environmental improvement by default. Prolonging the life of powered products (e.g. repairing a fridge) instead of replacing it with a new, more energy-efficient version of the product can outweigh environmental savings from using the old fridge longer and as such avoiding new production. Moreover, material recycling, in most cases, indeed is environmentally preferable, but recycling processes are resource intensive and material leakages are inevitable. Thus, material recovery needs to be actively planned and optimized, e.g. through product design for recycling and partnerships with recyclers that optimize recovery routes. Lastly, attention needs to be paid to rebound effects that could outweigh environmental improvements at product level. This can occur, for instance, if repaired products generate additional production instead of replacing virgin production.
Important to consider is that in order to cycle products and materials, their take-back needs to be organized in some way. These loops can have different extents, e.g. occur within one company, between several companies, or involve also consumers. While it is relative easy to close material loops within a company, the trickiest part is how to manage return of products and materials after the consumer. Integrating this part in the circular business model may hold the greatest potential for innovation and added value creation.