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Emergence of the Circular and Restorative Business Model

becque, renilde, consultantIn recent years, further fueled by economic meltdowns and austerity, the advocates for a fundamental change of our prevailing economic model have become increasingly outspoken. Terms such as Capitalism 2.0, Regenerative Capitalism, Responsible Economy, Restorative Economy and Circular Economy abound.

At a business level several pioneers have tested and trialed these concepts for at least two decades. This includes the late Ray Anderson, chairman of carpet tile company Interface, who became a passionate advocate in the mid90s for “climbing Mount Sustainability.” Rather than a goal of just eliminating environmental impacts he gave his team the task to convert the company into a Restorative Enterprise, “first to reach sustainability, then to become restorative, putting back more than it takes and doing good to Earth, not just no harm – by helping or influencing others to reach toward sustainability.”

Another philosophy known as Cradle to Cradle found a broad audience in countries such as the Netherlands from 2006 onwards. Private and public entities felt compelled to experiment with and apply the concepts of “re-making the way we make things,” “waste = food” as well as considering companies, cities and societies as metabolisms with biological and technical loops, therewith linking natural eco-systems to man-made cycles.

Some of these ideas borrow heavily from earlier concepts around for example industrial ecology and bio-mimicry. Whereas the latter often failed to appeal to a very broad and diverse range of stakeholders, the restorative enterprise and cradle to cradle philosophies have been relatively successful to date in unleashing a flurry of innovative thinking through their compelling approach. An approach which challenges people to apply their imagination, specific skills and knowledge to re-thinking the way things are done.

Although such concepts are still evolving through an iterative process of trial and error at various scales and applied to different situations, they provide fertile ground for outlining an indicative framework for a circular and restorative business model.

Key attributes of such a model are briefly being distilled here with a focus on those representing a step change away from prevailing production and sales models:

  • From a linear to an ecosystem approach for precious resources, thinking in continuous and causal loops – loops of materials and nutrients, but also loops of responsibility;
  • Eliminating all forms of waste, i.e. any cost in a production process which doesn’t produce value – from physical waste (waste = food) to wasting time, resources and energy;
  • Harnessing of renewable energy sources, creating energy loops rather than dead-ends;
  • Where possible, moving information rather than molecules (products or people);
  • Re-defining/-designing commerce by selling a service and its performance or values rather than the physical product – ownership of the product therewith remains with the supplying party. An example are ESCOs selling performance based energy efficiency services;
  • In line with this is a focus on fulfillment, i.e. fulfillment of a customer’s needs and aspirations, rather than a focus on individual consumption;
  • A distinction between biological nutrients, which can be used in cascades in order to gain as much value as possible from them and technical nutrients, which after first use can be maintained, reused, remanufactured or recycled;
  • Designing with consideration of a product’s economical and useful life – as influenced by e.g. fashion, politics and innovation. This could mean a core which has been designed to last (e.g. phone blocks), with a cover designed for replacement if the customer desires a different look or functionality;
  • A focus on upcycling instead of down-(re)cycling, in particular for technical nutrients, re-emphasizing and retaining the quality of resources;
  • A focus on minimizing entropy and preserving exergy, for example by assessing the energetic performance differences between alternative uses of (constituent) resources or alternative pathways, as well as through designing for reuse and re)assembly.

This can be explained by referring to the second law of thermodynamics. Spontaneous processes tend to occur in the direction of decreasing energy quality (exergy) and increasing disorder (entropy). In current production processes, the quality of a set of materials used in the production of products is often compromised by entropy, meaning that it will require extra energy to retain the quality of materials, real energy, labor or both;

  • Building resilience through diversity – in ecosystems this is based on biodiversity, while for business systems this resilience is based on different kinds of diversity: connections, customer relations, supplier relations, resources, and innovations;
  • Building shared values – in ecosystems also known as ‘symbiosis’, in a circular economy it’s about creating shared values with suppliers, sellers, customers and clients through performance and cooperative entrepreneurship;

In practice we currently see companies mainly embracing two different approaches:

  1. A hybrid solution, utilizing the advantages of both, or rather focusing on diminishing the disadvantages of either system. Hybrid situation are a key component of transitions: use the beneficial elements of the existing system to compensate the first failures of the new system in order to maintain reliability.
  2. Companies starting a new transformational business or business line separate from the existing one, in order to fully develop and dedicate the resources needed for success. This allows innovations in technical specifications and service delivery to be introduced swiftly without interference to existing operations.

This only goes to show that when we start solving linear problems, we may find ourselves having to solve other pieces of the complex puzzle as well as part of the ‘game of change’.

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5 thoughts on “Emergence of the Circular and Restorative Business Model

  1. thanks …good article …though I don’t see much sense in hybrids. Hybrids remember me of the story of the donkey who can’t decide from which haystack he should start to eat. I would go directly towards electric cars…anyways thx for sharing

  2. Despite of the fact that mentioned hybrid solutions obviously include much more general and wider horizon than the case of hybrid powered cars (of course, the progress in supplying them with the “clean energy” could proceed very rapidly), I am rather curious about the implementation prospects of here mentioned principles in general. This especially concerns recent economical paradigma which shows to us often very limited enthusiasm of the corporate sphere together with restricted competencies of the weak political sector – the state and public authorities.(see the flop of Kyoto, etc.)

  3. Dear Luca, thanks for your comment – hydrid in this case refers to business models and not specifically to electric vehicles.

    Nonetheless if we take the example of EVs, a direct switch to the new solution isn’t always as easy, practical or feasible as one may think.

    Imagine that tomorrow a majority of vehicle users would switch to EVs. The likely result is that we have quite a problem at hand. A full EV recharge often requires nearly as much energy as a household uses in a day. In addition, a large number of EVs would likely be charged at the same time, i.e. when people come home from work in the evening – the same time they turn on their lights, appliances etc.

    To accommodate a switch to an EV society we would not only require considerable investment in physical infrastructure , but furthermore we have to test, trial and optimize Intelligent Energy Demand Response Management systems which can manage and defer charges based on e.g. patterns, weather, major events and geographic EV distribution. We also require consumer incentive systems to better spread (out) total energy demand and would likely see the emergence of ‘giant virtual power plant and battery systems’. Till that time, hybrids serve us quite well.

    Similar to business models – we currently don’t have all the answers neither all of the facilitating infrastructure, financing and other arrangements in place. That’s where hybrid models can play a meaningful, temporary role.

  4. Hybrids create diversity in solution finding. We cannot assume that any one technology will win. Even within electric there are a number of possible approaches. The importance is decentralization to facilitate competition, and regional approaches to pilot projects.

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