open_resource : ideas, points of view
and solutions from the actors of the resource revolution



← Back Focus circular economy  

will the circular economy be the future growth model?

25.09.2017

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.


THE POINT OF VIEW OF PETER LACY, MANAGING DIRECTOR FOR GROWTH, STRATEGY AND SUSTAINABILITY AT ACCENTURE


Peter Lacy, Managing Director for Growth, Strategy and Sustainability at Accenture

Peter Lacy, Managing Director for Growth, Strategy and Sustainability at Accenture – Credits: 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 research1, 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.


The city of Palo Alto, craddle of Silicon Valley, hosting the headquarters of numerous tech companies

The city of Palo Alto, craddle of Silicon Valley, hosting the headquarters of numerous tech companies – Credits: Francesco Crippa


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.


THE POINT OF VIEW OF NAVI RADJOU, THEORETICIAN OF FRUGAL INNOVATION


Navi Radjou, Theoretician of frugal innovation

Navi Radjou, Theoretician of frugal innovation – Credits: Navi Radjou


Breaking free of linear logic

The circular economy is gaining strength, first and foremost because the limits of the conventional linear model are becoming more apparent every day. I have seen two types of limits in the United States, where I live. First, a social failure, as inequalities grow and, of course, an environmental failure. If everyone on the planet lived like an American, even four planets would not be sufficient to meet our needs.

So it has become essential to build a more inclusive model that is more egalitarian and consumes fewer resources. But which model? No-one advocates negative growth. I prefer to look towards another way—frugal innovation— that also creates value. This concept is inspired by the Indian “Jugaad” movement, which literally means “do it yourself” in Hindi, and consists, in simple terms, of doing better with less. This approach fits in perfectly with the circular economy. So the question remains: how can we produce better with less? In other words, how can we produce goods, from which 7 billion individuals can benefit, in a world with limited natural resources? One of the answers consists of placing eco-design at the heart of innovation in businesses and of transforming our waste into new resources, so that the impact of the consumption of raw materials is reduced.


The threats to the development of the circular economy

There are two main threats. The first is its very name. I think there is a danger in limiting circularity to its economic dimension, because the concept could be swallowed up and distorted by the capitalist model. Let’s draw a parallel with the sharing economy. Many of us have adopted this philosophy and believe in its relevance. But we have to admit that this model has already fallen into line, as businesses like Uber adopt this approach and “capitalise” on it to build a genuine business model. Similarly, I do not think that the Western populations, used to thinking “I consume, therefore I am”, will radically change their lifestyle on the strength of a promise that says “I consume better, therefore I am”. Introducing a hint of circularity into our usual practices will probably not be enough, if we really want individuals to change the way they consume in the long term. There is a danger that circularity creates an artificial feeling of fullness and therefore provokes the same social and environmental consequences as those that are criticised today.

The second risk is related to the first one. Philosophically, circularity is in opposition to the mental structures in the West. In America and Europe, we relate to the passing of time and linear development. But in the East, this relationship is cyclical, as testified by the belief in reincarnation. These philosophical differences are fundamental to our understanding of progress. In the West, we tend to yearn for “more and more”. Can you imagine an iPhone 8 with less functionality than the iPhone 7?


Example of a Jugaad innovation: improved customised motorcycles in India

Example of a Jugaad innovation: improved customised motocycles in India – Credits: Smriti Sharma


Impose a complete shift of paradigm to hasten the advent of the circular economy

We live in ecosystems where everything is connected, exactly like in nature. So we simply have to draw inspiration from the way nature works to understand the extent to which our old and self-centred economic models have become inoperative. Let’s consider a tree in a forest, its natural ecosystem. Every day, the tree makes more than 20 positive external products for use by the species that live around it. Much like 20 services, completely for free!

Let’s now apply this reasoning to the business world and ask ourselves a question. “What are the 20 services that my company will deliver today, free of charge, to the other companies, individuals and the nature that surround it?” While it may seem utopian, this is the project adopted by Interface, an American floor coverings manufacturer. The company is exploring new processes that enable its factories to operate like natural ecosystems. The company’s pilot project “Factory as a Forest” not only reduces the negative impacts of its activity on the environment, but it also aims to have a positive impact on its ecosystem and stakeholders.
Finally, it is not simply a matter of knowing whether we produce these or those consumer goods in a more resource-sober way. We also need to consider the societal impact of the ways we produce and consume. We need to think about a “spiral” economy, where every project aims to be inclusive and to generate positive interactions.


Extending the scope of the circular economy to the immaterial

The breakaway from linear models obviously applies to tangible resources, but it must also include intangible resources, such as knowledge. This is one of the conclusions of a recent study ordered by the European Commission, entitled “Study of frugal innovation and reengineering of traditional techniques”. Here again, our Western mental structures, which I qualify as linear, lead us to prefer the “more and more approach”. In the knowledge- based economy, this results in filing for patents, which are often perceived as one of the company’s performance indicators. But to progress, we must also make better use of the knowledge we gather. We can create value from the synergies between different activities and between different economic sectors that are currently partitioned, and even between States.

This was the thinking behind decision taken by GE Healthcare — the division of the GE Group that supplies advanced medical technologies and services — to reuse radiotherapy technologies to inspect and monitor gas and oil pipelines for leaks. Completely circular companies need to know how to use and reuse their intangible assets as drivers of growth and progress.
States and companies must also capitalise on these flows on a worldwide scale. This is possible through knowledge transfers or reverse innovation, which consists of calling on emerging economies to design products and services, before deploying them in industrialised countries.


Dishoom Chowpatty Beach bar: almost exclusively designed from recycled materials, London, UK

Dishoom Chowpatty Beach bar: almost exclusively designed from recycled materials, London, UK – Credits: Hunt Haggarty


While circularity is often developed through local actions, the stakes are global

Increased scarcity of natural resources, environmental and economic migration, social inclusion, the sharing of skills and knowledge… The “circular revolution” can only be global and applied on a worldwide scale. It is essential to overcome the North-South divide and, above all, to avoid thinking that countries in the South will spontaneously opt to grow according to a virtuous and circular model. While they may adopt circular practices in the form of resourcefulness, their populations still aspire to development based on the reference framework set forth by industrialised countries. But we all live on the same planet, with its limited resources. So it is in our own vital interest to make sure that economies all over the world grow together according to more environmentally sober and more socially inclusive models. With the United States withdrawing from Paris climate Agreement and them progressively phasing-out on the international stage, I believe that Europe’s States, institutions and businesses must play a central role in the co-construction of circular models with the countries in the South. Europe must accept a leading role in order to be in the forefront of this much-awaited breakthrough.


1-Digital Transformation Initiative. In collaboration with Accenture, World Economic Forum, January 2017.


This article was published in the fourth issue of open_resource magazine: “The circular economy era





You may also like