It was when the three researchers, Mats Williander, Marcus Linder and Thomas Nyström, got a bicycle manufacturer in Gothenburg interested in testing a circular business model for a new product that the project “Towards a circular economy” was started. The project is run in cooperation between Chalmers, Center for Business Innovation (CBI) and the Viktoria institute. With a cicular business model the reutilization concept is there from the very beginning. Products will return to the producer and as a positive side-effect the environment is protected through reduced amounts of waste and reduced materal and energy consumption by re-manufacturing instead of producing new products.
- Many traditional business models build on the assumption that you manufacture a product and then sell it hoping never to see it again. If we are lucky, some of the material will be recycled, but impaired material characteristics will cause it to quickly end up at the garbage dump or be burned. When a circular material flow is incorporated into the business model, the products should return to the manufacturer, which provides many advantages, says Mats Williander.
The researchers explain that with closed material flows the products and the entire business already from the start are designed for recycling and re-manufacturing to increase the economic efficiency. A positive side effect is the protection of the environment with reduced amounts of waste. A key element will be to sell the product’s function as a service and retain the ownership.
Changed business models when the material flow is closed
The project studies how a firm’s business model changes when the material flows are closed. A large focus is on trying to understand how business leaders reason around the decisions that must be made. An important issue has been at which stage the product is to be reintroduced into production.
- If the product is ground down into raw material the flexibility is greater, but the costs are higher than if you choose to only perform a quality control and restore the most expensive components. The choice affects how you want to get paid and who should own the product during its life cycle. This in turn has implications for issues like customer relations, supplier relations, modularization and product interfaces, Marcus Linder explains.
Profitability through increased economic life
The researchers have found that there seems to be great profitability potential in a circular business model, among other things due to the extended economic life span. They also mean that it is important for the firm to take an owner responsibility for the product in order for the sustainability profit to be realized, it’s not enough with traditional leasing.
- When the company retains the ownership, a strong incentive is created to minimize the costs also during the use of the product as these costs directly affect the firm. It can be costs that previously could have been income such as service and spare parts, Thomas Nyström says.
Pilot test with electric bicycles
The project will run until the end of the year but some conclusions have already been drawn from the results that have emerged so far.
- We can see that, with the right design of circular business models, at least some firms should be more competitive and at the same time become more ecologically sustainable, Mats Williander says.
Even if they see the use of a circular business model becoming more common in the future the three researchers mean that the switch-over will take time. One probable reason for this is that the switch-over will have such great effects on the firm’s business model that many firms will hesitate.
- As most companies have linear business models where many products are produced and used to later be discarded, it may be problematic in existing relations in the value chain if a firm changes its business model. There are, in other words, inertia and challenges outside the firm which may make the switch-over difficult or even impossible, Marcus Linder means.
A pilot test of the business model, comprising 10 electric bicycles and 10 subscription customers, has been carried out with a local bicycle manufacturer and this will be followed up by the researchers during the autumn. They will also sketch out a number of papers based on the insights received from the project.
- For many consumer products individual ownership is important, but the pilot study shows that sometimes it can be just as attractive for the customers to have access to the electrical bicycle function as owning it themselves, Thomas Nyström establishes.
Text and photo: Caroline Örmgård
Translation: Eva Burford