Organizing for a Circular Economy

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(Adjusted version to protect Philips’ competitive position)

Organizing for a Circular Economy

“Implementing the re-make opportunity: a capability perspective”

by

Pim Kiffen

University of Groningen

Faculty of Economics and Business

January 2016

Supervisors:

Dr. ir. Michiel Hillen (first supervisor, RUG – FEB)

Dr. Hans van der Bij (second supervisor, RUG – FEB)

Ir. Anton Brummelhuis MBA (Philips Lighting, Sustainability)

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Abbreviations

CE Circular Economy

LE Linear Economy

EMF Ellen MacArthur Foundation

LaaS Light-as-a-Service

Abstract

This research aims to further develop the framework of the Circular Economy (CE) and addresses one of its technical loops: the re-make loop, which includes refurbishing and remanufacturing used products. Organizations seem to struggle in moving from talking about CE towards acting upon the economic prosperity that it provides. This paper has related acting behavior to the organizational capability theory and aims to provide new insights by developing a capability roadmap for implementing opportunities derived from the re-make loop. An in-depth case study on Philips allowed the author to gather

qualitative data on an active re-make sector (Healthcare) to derive at a conceptual roadmap, which was applied to a sector willing to adopt re-make (Lighting). Findings show that several dynamic capabilities to sense, seize and transform allow organizations to transit towards CE and implement re-make

opportunities. In addition, the operational capabilities to perform re-make activities have been identified. This research added to the limited academic coverage on the CE and re-make loop. In addition, the conceptual capability roadmap provides organizations new insights to guide them in implementing re-make opportunities.

Acknowledgement

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1. INTRODUCTION... 4

2. RESEARCH QUESTIONS ... 6

3. THEORETICAL BACKGROUND ... 7

3.1 INTRODUCING THE CIRCULAR ECONOMY ... 7

3.2 DEFINING THE RE-MAKE LOOP ... 8

3.3 RE-MAKE OPPORTUNITY ... 9

3.4 ORGANIZATIONAL CAPABILITIES ... 11

4. METHODOLOGY ... 13

4.1 RESEARCH DESIGN ... 13

4.2 CASE AND INTERVIEWEE SELECTION ... 13

4.3 DATA COLLECTION ... 14

4.4 DATA ANALYSIS ... 15

5. FINDINGS ... 16

5.1 RQ1:WHAT ARE THE RE-MAKE OPPORTUNITIES AND CHALLENGES?... 16

5.2 RQ2:WHAT DYNAMIC CAPABILITIES ENABLE THE SUCCESSFUL IMPLEMENTATION OF RE-MAKE OPPORTUNITIES? ... 18

5.2.1 Sensing capabilities ... 18

5.2.2 Seizing capabilities ... 20

5.2.3 Transforming capabilities ... 22

5.3 RQ3:WHAT OPERATIONAL CAPABILITIES ENABLE THE SUCCESSFUL IMPLEMENTATION OF RE-MAKE OPPORTUNITIES? ... 24

5.4 DISCUSSION ... 26

5.5 RQ4:HOW COULD PHILIPS LIGHTING APPLY THE CAPABILITY ROADMAP? ... 30

5.5.1 Relevant developments ... 30

5.5.2 Implementing re-make opportunities ... 31

6. CONCLUSION ... 34 6.1 CONCLUSION ... 34 6.2 CONTRIBUTIONS ... 35 6.3 LIMITATIONS ... 35 6.4 FUTURE RESEARCH ... 36 REFERENCE LIST ... 37 APPENDIXES ... 41

APPENDIX A:DATA SOURCES ... 41

APPENDIX B:INTERVIEW GUIDE ... 42

APPENDIX C:PHILIPS’ CURRENT ENDEAVORS ON CE ... 44

APPENDIX D:EXTERNAL COLLABORATION PARTNERS CE ... 45

APPENDIX E:DESIGN PRINCIPLES CE ... 46

APPENDIX F:CODING ... 47

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1. Introduction

“By 2050, the global population is expected to grow to a whopping 9.6 billion people. Our

economy will double in size. You don’t have to be an environmental scientist to envision the toll

this kind of growth and increased consumption will take on our planet”

Michael Dell (CEO Dell Computer)

Since the start of the industrial era, around 200 years ago, we have been treating earth’s resources as being infinite (Vonderembse et al., 1997). However, rising consumption has put serious pressure on natural resources availability. Calculations show that we would need 3 planets by 2050 to provide the amount of resources needed if we continue using the linear, make-use-dispose, economic model (Global Footprint, 2012; EMF, 2012). If we want to enable next generations to live on the same level of welfare, change has to occur.

This prospect has driven the need of an alternative economic model: the Circular Economy (CE). It is a restorative economic model by design, aiming to maximize value and utility created throughout the value chain by closing the material loops via maintenance, re-use, re-make and recycling (EMF, 2015). The CE decouples economic growth from the usage of natural materials and the global potential savings on only materials are estimated by McKinsey and the Ellen McArthur Foundation to reach 1 trillion dollars per annum by the year 2025 (EMF, 2012). Therefore, besides performing an environmental and societal way of conducting business, companies can “create superior value and capture advantage” (Accenture, 2014 p. 23). The CE is gaining increasing attention and multinationals like Renault, Philips and Vodafone have already integrated CE principles in their organization. This progress has been stimulated by the Ellen MacArthur Foundation (EMF), which was established in 2010 and is the worldwide leader in stimulating the adoption of the CE through several programs and collaboration platforms. The CE is also gaining increasing attention at a macro-political level as a new way to increase prosperity, while reducing dependence on primary materials and energy (Club of Rome, 2015; TNO, 2013; European Commission, 2013). Despite the business and political attention on CE, academic coverage on this subject remains marginal. This leaves multiple directions open to research in the context of CE.

The CE framework contains four distinct technical loops and this paper will zoom into one of them: the re-make loop, which contains both remanufacturing and refurbishing and describes the opportunity to return a product to “as new” condition and generate additional revenue. A CE requires organizations to think and act differently compared to the status quo of the linear economy. Different business activities are into play and require adaptation throughout the organization, from business strategy to

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Looking at organizational theory, we can link organization’s acting behavior to organizational capabilities. These capabilities enable organizations to accomplish a certain task and arise from an organization’s learning, resources and histories (Teece, 2014). In order to transit from a linear economy and adopt a circular approach, new capabilities might arise (Accenture, 2014).

In academic literature, a distinction is made between operational (or ordinary) and dynamic capabilities (Teece 2014; Heifat & Winter, 2011; Zollo & Winter, 2002). Whereas operational capabilities allow organizations to achieve efficiency by “doing things right”, dynamic capabilities enable organizations to “doing the right things”. Table 1 shows a more elaborate overview of the differences.

Capabilities can create sustainable competitive advantage (Teece et al., 1997), which is why it is important to know what capabilities allow organizations to achieve sustainable circular advantages. Especially for incumbent organizations that have longstanding routines and capabilities, it is challenging to adapt to these changes. In order to build sustainable circular advantages there might be new

capabilities that arise and former capabilities that should be altered.

The goal of this study is provide organizations guidance in implementing re-make opportunities by identifying relevant capabilities in re-make. This will be based on a case study at Philips, which presents a unique opportunity to establish learnings from one Philips’ sector (Healthcare) and try to generalize these findings to another sector (Lighting). Philips Healthcare has successfully established activities in the re-make loop, whereas Philips Lighting aims to implement re-make opportunities but lacks knowledge on how to act upon this wish. Therefore, a roadmap provides them guidance in taking action.

This paper will contribute to the marginal coverage of CE in academic literature. Developing a capability roadmap will provide new insights into the organizational capability theory in relation to new economic and sustainable opportunities. Including both operational and dynamic capabilities will result in a relatively complete identification of those organization capabilities involved. In addition, companies will be presented with a framework of capabilities that could accelerate and improve the adoption of the CE re-make loop. Companies can gain first-mover advantages and benefit from the huge potential market of the CE.

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The objective of this study is to develop a concept capability framework for implementing opportunities presented in the re-make loop of the CE. This research aims to identify the capabilities that lead to successful implementation of those opportunities and construct these in a capability roadmap. Focus is on identifying two types of capabilities that exist in organizations, namely operational and dynamic capabilities. Developing this roadmap is necessary to guide Philips Lighting in solving the re-make opportunity. It provides a framework, which is complemented by findings on Philips Lighting. This research has an explorative character and will be based on qualitative data gathered from Philips and external experts.

The main research question that is answered in this thesis is the following:

“What capabilities enable the implementation of opportunities presented in the re-make loop?”

RQ 1: What are the re-make opportunities and challenges?

RQ 2: What dynamic capabilities enable the successful implementation of re-make opportunities? RQ 3: What operational capabilities enable the successful implementation of re-make opportunities? RQ 4: How could Philips Lighting apply the capability roadmap?

Figure 1 shows the conceptual framework of this study, whereby re-make performance (value extracted)

is expected to increase by deploying organizational capabilities. Therefore, they are structured along the increasing arrow.

This research will be conducted during a 6-month internship at Philips, which is one of the leading companies in the CE and a main partner of the EMF. Therefore, Philips possesses a valuable network that enhances the significance of the results. Learnings will be established from Philips’ Healthcare sector to structure the capability roadmap. Moreover, information is gained on Philips Lighting to provide more guidance along the capability roadmap.

To answer the research question, this paper is structured as follows: the theoretical background will describe existing literature on CE, re-make and organizational capability theory. Then, results regarding the capability roadmap will be analyzed and discussed. Next, the application to Philips Lighting is

described. Lastly, the conclusion section will summarize this study’s findings and provide theoretical and managerial implications.

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3. Theoretical background

This section describes relevant literature in light of this study. The theoretical background will provide an introduction to the concepts used throughout this paper. First the CE and re-make will be discussed, after which the organization capability theory will be introduced.

3.1 Introducing the circular economy

The CE is initiated as a financially attractive and viable alternative to the dominant linear model. The term was first introduced by Pearce and Turner (1990), who addressed the ecological limits to the linear, make-use-dispose model. The Ellen MacArthur Foundation defined the CE as “an industrial and economic model based on the reuse of products and raw materials, and the restorative capacity of natural

resources” (EMF, 2012 p.3). The system aims at closing the material flow at all value creating stages of the economy, maximizing value retention and minimizing value destruction (Su et al., 2012; Wu et al., 2012).

The CE has deep-rooted origins in several school of thoughts like regenerative design, cradle-to-cradle and industrial ecology (EMF, 2013). Although the concept of CE has been around for a while, there are recent developments that enable quicker adoption and scale-up of the CE, like customer preference for access over ownership, urbanization, development of a ‘sharing economy’, advances in technologies and recent government and regulator attention (EMF, 2014). The CE constitutes two material loops:

This research will focus on the technical loop since it is more relevant to organizational theory and closer to the researcher’s knowledge base. Charter and Grey (2007) provide relevant descriptions of the four technical materials loop.

Maintain/repair concerns retaining or restoring value of equipment and is the most efficient loop. This loop is aimed at keeping products operational through maintenance and, when necessary, repair.

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Reuse/redistribute concerns cascading products in order to extend the product life. The same product is used several time, without making adjustments.

Remanufacture/refurbish (re-make) concerns restoring used products to “as new” quality and

return them to the market. The value added during manufacturing is therefore recaptured and allows organization to revalorize used products.

Recycling concerns recovering materials at the end-of-life. The products are disassembled and the recyclable materials are used as raw materials input for new products.

Next to four loops, the CE contains four building blocks that enable integration of the CE

system (EMF, 2012). Firstly, innovative designs should aim to comply with CE design rules to maximize value preservation or capturing throughout all loops. Secondly, reverse logistics should enable collection of products after a use-cycle. Thirdly, an economic system change requires new collaborations within and across sectors. Fourthly, new business models related to Product-Service-Systems (PSS) enable better lifecycle management of products. PSS is defined as “tangible products and intangible services designed and combined so that they jointly are capable of fulfilling specific customer needs” (Tukker, 2004 p.1). According to Tukker (2015), these model can significantly contribute to resource-efficiency and circularity of systems.

To conclude:

The Circular Economy model contains unique value creating loops and requires companies to act

differently compared to the, more straightforward, linear economy

3.2 Defining the re-make loop

This paper aims to identify capabilities that are relevant to capture opportunities in the re-make loop. The re-make loop is the overarching term used to describe refurbishing and remanufacturing. Both concepts are closely related and frequently intertwined in academic and non-academic literature (Ijomah, 2002; Charter & Grey, 2007). For example, Stahel (1994) regards refurbishment to be part of

remanufacturing: “remanufacturing involves the restoration of old products by refurbishing usable parts and introducing new components where necessary” (p. 132). Ijomah (2002) described refurbishing as “the rebuilding of a used product or component back to a range of satisfactory working condition” (p.18) and remanufacturing as “the process of bringing used products (called cores) to “like-new” functional state by rebuilding or replacing their component parts” (p. 22). Literature refers to used products as “cores”, which will go through several steps to be revalorized (Charter & Grey, 2007).

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In order to derive consistency with the CE principles and avoid confusion, remanufacturing and

refurbishment will be regarded as re-make throughout this paper. Both processes result in products that contain previously used components, receive a warranty and are being returned to the market.

To conclude:

The re-make loop is defined as “the process of rebuilding a product after a use-cycle. The

product is cleaned and inspected, after which it will be returned to the market “as new” via

either remanufacturing or refurbishing”

3.3 Re-make opportunity

In order to gain understanding on how the re-make loop present organizations with opportunities, this section will provide an overview of the economic potential. According to Steinhilper (2006), re-make can amount in being up to twice as profitable compared to. This value mainly resides in multi-cycling

products, enabling to fully obtain the value added during the first manufacturing process (EMF, 2012). By revalorizing an established base (core), energy and material costs can be saved (Liander & Williander, 2015).

Therefore, re-made products usually have a price advantage over new products, present both opportunities and challenges. One the one hand, it enables organizations to broaden the market by reaching customers who desire quality comparable to new products, but are not able or willing to pay the full price (Vorasayan and Ryan, 2006). On the other hand, cannibalization of new product sales might be present. Cannibalization refers to customers preferring re-made products over new products

(Kushwaha & Bhattacharya, 2015).

Moreover, re-make requires organizations to stimulate innovation and creativity to optimize processes (Charter & Grey, 2007; Linder & Williander, 2015). Furthermore, ecological opportunities are present, since re-make will steer the organization towards the “green” label and provides high savings on materials, energy and other negative environmental impacts (Subramomiam et al., 2010).

These benefits regarding the re-make opportunity need to be enabled by the enabling building blocks presented earlier (EMF, 2014). Applying these blocks will stimulate value captured from the re-make opportunity. Let us now discuss these blocks in more detail.

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business models like Spotify, Air BNB or Uber. Figure 4 depicts the central role of PSS in the CE system. Incorporating PSS into re-make business models would allow closer customers relations, better monitoring of products, higher efficiency in reverse logistics and closing the material flows (Sundin et al., 2000).

Design should strive to meet certain design rules that comply with the CE (Charter & Grey, 2007; Balkenende & Bakker, 2015). Products based on the linear economy are designed to optimize functionality, which mostly goes at the expense of

environmental issues (Ijomah et al., 2007). Products that obstruct CE activities will result in higher operational costs,

which will diminish the price advantage re-made products have over new products (Charter & Grey, 2007; Giuntini & Gaudette, 2003). To comply with new design specifications, Balkenende and Bakker (2015) developed design rules for multi-cycle product design (figure 5). Designers should strive to include these options based on a costs and benefits assessment, since these design rules should be

added to the extent they are economically viable.

Reverse logistics aim at collecting used products and materials so they can either be re-used, re-made or recycled (Huang, 2012). Huang (2012) has defined a reverse logistics network design as “a process by which a company establishes its collection/acquisition centers, inspection/sorting centers, reprocessing plants, and disposal facilities; incorporates ecological concerns in locating them; and chooses

environmental transportation modes between them” (p. 44). According to Huang (2012), the reverse logistics network design is a process made up of several operational activities. First, products are collected and physically moved to a place where they will be treated accordingly. Next, returned products will be inspected and categorized for further treatment based on their condition. The assessment will determined whether products are re-used, re-made or recycled. This aligns with

Alshamsi and Diabat (2015), who simplified the reverse logistics process that starts by collecting the core and terminates with the re-processing at the facility.

Reverse logistics are an important enabler in re-make models. Therefore, organizations should strive to develop high-quality and cost-efficient collection and treatment systems.

FIGURE 4: PRODUCT SERVICE SYSTEM CE(SOURCE:CE TOOLKIT,2013)

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By applying PSS, organizations remain or regain ownership of their products, increasing control in the reverse logistics network.

Collaboration among stakeholders should improve cross-sector and cross-cycle performance and foster the adoption of the CE (EMF, 2015). In light of the CE, collaboration remains more holistic to steering the systematic change. Policy makers should collaborate with businesses to provide a legal framework that will remove constrains and standardize CE as an economic system (EMF, 2012). Moreover, cross-chain and cross-sector

collaboration will strengthen the CE knowledge base and increase the learning pace of organizations. Another mechanism to increase the knowledge base is by integrating CE into university curricula (EMF, 2012). In addition, financial institutions should adapt financing and risk management tools to comply with new economic models. Open collaboration allows for shared learnings in discovering a new phenomenon and could therefore enable the CE to reach scale more quickly. Concerning re-make, legislation could be established that allow tax benefits on re-made products and establish rules and regulations (Charter & Grey, 2007). Moreover, cross-sector collaboration could result in a collaborative reverse network design.

Based on the presented literature, the following definition of a re-make opportunity has been derived:

A re-make opportunity is defined as an “opportunity that arises from activities related to

revalorizing cores, which allows the organization to derive direct and indirect value”. In order

increase value capturing, organizations should include the four building blocks.

3.4 Organizational capabilities

Organizations can derive significant opportunities from the CE. However, they seem to struggle in actually implementing these opportunities (Kok et al., 2014; Liu & Bai, 2014). The transition to a CE requires a full systematic change and innovation throughout the organization (Smol et al., 2014). Therefore, in order to successfully transit to the CE and implement the re-make opportunity, organizational change will have to occur.

According to Teece (2014), organizational adaptation is enabled by the capabilities an organization possesses. Literature states that capabilities enable companies to act and perform tasks (Teece 2014; Winter & Zolle, 2002; Heifat & Winter, 2011). These capabilities arise from developing routines and processes over time, which in turn arise from the alignment of its resources (Teece, 2014). In the academic literature, different levels of capabilities have been identified. This paper will adopt the classification made by Teece (2014), who divided organizational capabilities into operational and dynamic.

Operational capabilities enable an organization to obtain sufficiency in performing a well-delineated task and is a combination of skilled personnel, processes & routines, and coordination. Operational

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capabilities can be of great importance to organizations and generate a competitive advantage for decades, but as Teece (2014) noted: “strong ordinary capabilities may be sufficient for competitive advantage, but only until conditions change” (p. 331).

This paper regards the future developments (that show the limits of the LE) as the conditional change that organizations will encounter. A CE might require changes in operational to “Doing things right” compared to a LE (EMF, 2012; Liander & Williander, 2015). For example, the manufacturing capability might be extended to re-making cores. In addition, new operational capabilities to enable multi-cycling might arise, like reverse logistics (Huang, 2012). Therefore, we define re-make operational capabilities as “capabilities that enable organizations to achieve efficiency in performing re-make related activities“. In order to modify these operational capabilities, organizations should deploy dynamic capabilities. These capabilities allow organization to “doing the right things” (Teece, 2014). In order to achieve

sustainable competitive advantage, organizations should possess certain dynamic capabilities that can be categorized into three groups (Teece, 2014).

1. Sensing capabilities: identifying and shaping opportunities by scanning and monitoring developments in operating environments.

2. Seizing capabilities: allocating resources to address these opportunities and actually capture value from them.

3. Transforming capabilities: continuously aligning and realigning assets and resources to optimize value capturing.

Organizations should remain flexible and achieve congruence with technological and market-related developments, as well as with broader societal goals (Winter & Zollo, 2002; Nonaka & Takeuchi, 2011). Especially for incumbent companies that have longstanding routines and operational capabilities, it is important to possess dynamic capabilities to prevent them from becoming rigid.

Each dynamic change in the organization’s environment might require different capabilities. Wu et al (2012) argue that the dynamic capabilities related to corporate sustainability are distinct organizational capabilities, which enable organizations to “address the rapidly evolving sustainable expectations of stakeholders by purposefully modifying functional capabilities for the simultaneous pursuit of economic, environmental, and social competences” (p.233).

This paper aims to uncover those dynamic capabilities to related dynamisms. The push for CE has been driven by the economic, social and environmental changes (EMF, 2012). Therefore, dynamic capabilities could play a significant role in the transition process towards the CE and re-make. This could enable organizations to achieve sustainable competitive advantage in the re-make loop. Therefore, we will define re-make dynamic capabilities for re-make as “capabilities that enable companies to sense and seize re-make opportunities and transform internally to optimize value capturing”.

To conclude:

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4. Methodology

This chapter will elaborate on the methodological approach applied in this study’s research, which includes research design, case and interviewee selection, data collection and data analysis.

4.1 Research design

Organizational capabilities in the re-make loop have been marginally described in the academic literature and needs further exploration. An exploratory research will contribute to the marginal academic

coverage on the phenomenon of interest. Moreover, qualitative research allows for using several data collection methods, to gather rich data and increases internal validity (Garnon, 2012).

In order to gain a deeper understanding on the re-make loop, a case study research will be conducted. A case study is “an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident” (Yin, 2014 p. 13). A case study has been selected to gain more understanding on the role of organizational capabilities in relation to the re-make loop. From these findings, a capability roadmap will be structured. The map will provide Philips Lighting guidance in adopting opportunities presented in this loop.

According to Yin (2014), there are three conditions that determine the appropriate research method. Namely, the form of research questions,

the required control over behavioral events and whether the focus is on contemporary events. In this research, a case study is justified since it tries to answer a “what” question, relevant behaviors should not be manipulated and contemporary events are examined. Moreover, the case study allows direct observations and systematic

interviewing (Yin, 2014). This study will act upon the criteria and tactics described in

figure 6 to derive at a high quality

academic paper.

4.2 Case and interviewee selection

The single case study at hand is a multinational manufacturing company in the technology sector: Philips. A manufacturing firm is preferred since their operations are highly relevant to the re-make loop.

Manufacturing firms have the “opportunity to drive better product design and remanufacturing across their operations and also exchange material flow so that the waste of one manufacturer becomes the raw material of another” (Resource Revolution, 2014, p.28). Therefore, these types of organizations are generally presented with significant opportunities in the re-make loop.

Moreover, Philips is considered to be one of the front-runners in the CE and is one of the main partners of the Ellen MacArthur Foundation. Case studies surrounding front-runner organizations offer deeper

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insights into the distinctive capabilities required, as Parida et al (2014) found in the servitization transition. They have established processes and routines, from which capabilities are derived.

Philips is divided in three sectors (Healthcare, Lighting and Consumer Lifestyle) and all actively engage on different levels in the CE (see appendix C). This research specifically focuses on the Healthcare and Lighting sector. Philips Healthcare has successfully developed a re-make business, through its Diamond Select program that re-makes used medical equipment. Philips Lighting is willing to follow this lead, but lacks sufficient knowledge on success factors here. Therefore, this case study will provide a unique opportunity to gain insights from Philips Healthcare and to relate these through a capability roadmap to the opportunity solving at Philips Lighting. Based upon the above mentioned characteristics, Philips is considered to be a relevant theoretical sample to conduct this research at.

Qualitative techniques will be applied to gather data from several sources, namely semi-structured interviews, documents and a video. Interviewees have been selected based on purposive sampling. This sampling method aims to select interviewees that “will yield the most relevant and plentiful data, given your topic of study” (Yin, 2011 p.88). Therefore, participant selection was based on the researcher’s insights into their understanding of CE, re-make and organizational capabilities. Interviewees have had experience with the re-make loop or contain extensive knowledge on concepts related to this

phenomenon.

In total, 13 interviews were conducted of which 10 interviewees work for Philips and three for external organizations. Although all Philips’ sectors were represented, merely one interviewee related to

Consumer Lifestyle (Personal Health), which complied with this study’s focus on Healthcare and Lighting. Based on purposive sampling, the author has looked at an internal group that best match the knowledge base necessary for this research. It is expected that knowledge on capabilities, re-make and CE resides mostly in the higher management levels. Therefore, a considerable input has been derived from the Philips’ CE core management group, responsible for integrating CE at the highest level of the organization. Not all participants contained significant knowledge on both Philips Lighting and

Healthcare, but their CE knowledge base enabled them to provide useful insights. Moreover, when the interviewee possessed expert knowledge on one sector, focus has been brought into the interviews if this was expected to be more useful. Next to Philips participants, this research added perspectives from other leading sources in CE and re-make, namely: a different industry company (RICOH), a university (TU Delft) and the leading foundation in CE (Ellen MacArthur Foundation). This contributed to gaining insights from multiple directions.

In total, 13 interviews have been conducted, which is assumed sufficient to gain a ‘thick description’ on the phenomenon of interest (Erlandson et al., 1993). Moreover, Guest (2006) found that data saturation had mostly occurred when twelve interviews were analyzed. Therefore, thirteen interviews are justified in relation to the study’s purpose.

4.3 Data collection

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been transcribed (if necessary) and comprised into this study’s database. A chain of evidence has been maintained by providing close links and references to this database throughout the paper. An overview of the different data sources is provided in appendix A. The interview guide (appendix B) has been changed along the interview period, which was necessary to better shape the questions into a language that was closer to the interviewees knowledge base. Of all interviews, 11 interviews were conducted face-to-face and 2 via Skype. Of all interviews, 10 were recorded digitally and fully transcribed

afterwards and 3 were documented by taking field notes. Each interview lasted between 40-60 minutes. Next to the interviews, documents and a video were added to gather general perspectives on CE and re-make. These sources have partially been referred to by interviewees.

The interviews were structured into four sections, each dealing with a sub-research question. The first section covered a general introduction and questions concerning the opportunities and challenges in the re-make loop (section 5.1). The second section aimed to unveil the dynamic capabilities associated with implementing re-make (section 5.2). This section has been structured according to the three dimension of dynamic capabilities developed by Teece (2014). The third section focused on the operational capabilities involved in re-make activities (section 5.3). The forth section aimed to apply the

interviewee’s knowledge on Philips Lighting opportunities in re-make (section 5.3). Interviewees with less knowledge on Philips Lighting were asked to provide general information about a possible capability roadmap.

4.4 Data analysis

Collected data has been transcribed and analyzed by assigning codes to quotes through an iterative process. In total, 270 quotes have been identified (appendix H). Coding is used to structure data and move towards a more conceptual level of understanding (Yin, 2011). Grouping the data through codes enabled the author to structure the data and generate categories for developing a concept for

implementing re-make through a capability roadmap. The roadmap is an important part of the

opportunity solving aspect for Philips Lighting, it contributes to a holistic view on implementing re-make. Content analysis is suggested to be applied in producing a conceptual map with a practical guide to action, which complies with developing a conceptual capability roadmap (Elo & Kyngäs, 2007). The aim is to “attain a condensed and broad description of the phenomenon, and the outcome of the analysis is concepts or categories describing the phenomenon” (Elo & Kyngäs, 2007 p. 108). It is applied to enhance an understanding of the related concepts of re-make. As Yin (2011) noted, a researcher can determine what aspects of the data to code and what to interpret elsewise. Therefore, coding data has been mainly the input for structuring the data on developing the capability roadmap. In addition, this research merely focuses on analyzing the manifest content and exclude any latent content (Elo & Kyngäs, 2007). The inductive content analysis is recommended when there is little previous research on the phenomenon at interest, which is the case in this paper.

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A first step is to apply open coding to the transcribed data. During this stage, relevant parts of the transcribed data are highlighted, on which codes are assigned that stay close to the original text. These open codes have been collected and categories were freely generated at this stage. By creating

categories, returning aspects are grouped and more general concepts are formed. The last phase, abstraction, means “formulating a general description of the research topic through generating

categories” (Elo & Kyngäs, 2007, p. 111). Content-characteristic words are assigned to the categories and based on these words, main categories are identified. An example of such a process has been provided in appendix F.

5. Findings

This chapter provides the research findings and analysis in two different sections. Firstly, the findings on re-make opportunities, challenges and organizational capabilities will be presented. These results are analyzed and discussed with existing literature, from which the capability roadmap is derived. Secondly, the application to Philips Lighting will provide guidance along the implementation of re-make

opportunities for Philips Lighting.

5.1 RQ 1: What are the re-make opportunities and challenges?

Opportunities

From the findings, multiple re-make opportunities were identified. Firstly, re-make requires the take-back of cores from customers, which creates a touchpoint with customers at a critical decision moment. The organization can offer a new product at that moment, boosting new product sales and customer relations. Therefore, the value of re-make should not be merely based on revalorizing cores, but from an integral perspective.

“At that moment, you can sell new systems and possess something you can bring back to the market. So this stimulates new sales and customer retention” (interview I, Removed content)

Secondly, residual value can be captured by regaining access to cores. Adding value to an existing base will save materials, labor and energy compared to producing a new product. This carries both costs and ecological benefits to the organization.

“The whole idea of refurbishment is that you can resell a high-quality product for less costs because you build on an established product” (interview C, Removed content)

Thirdly, by offering these products for a lower price, the cost barrier that customers might perceive to products will be lowered. This could provide organizations access to markets that were previously out-of-reach

“In Healthcare, the benefits are that you can increase your market share because you keep the same amount of installed base through buy-backs. Refurbishment then enables you to sell an additional

system, which will increase your market share” (interview I, Removed content)

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Challenges

Next to opportunity drivers, there are also challenges that organizations encounter. What kind of challenges an organization encounters depends on characteristics like size, product and industry. Since this case study concerns an incumbent organization, the challenges presented below are particularly applicable to incumbents. Adding the holistic insights of an EMF employee provided insights into

common problems organizations encounter in implementing CE principles. He classified these challenges as linear lock-in.

“We refer to it as linear lock-in. The incumbent’s legacy system, incentives, structures and so on, that were built upon years and years of optimizing a linear system based on efficiency”

(interview L, Removed content)

A significant challenge in re-make is to manage internal and external perceptions. Internally, employees could be resistant due to the fear re-make will cannibalize existing new product sales.

“Introducing a second-hand market seems to compete with the existing new sales. Therefore, this business has to be properly positioned and people need to be informed internally and externally, else

people will work against you” (interview M, Removed content)

Another internal challenge is to strategically include re-make into the organization. Since re-make can internally be viewed as a threat to existing business, this is not always present.

“I think if you really want to run a circular economy business, it needs to be a strategic decision that is ensured through the top management of the organization and defines processes, capacity and capability

to ensure in relation to that strategy. We see that’s not always the case” (document A)

Externally, customer perception of re-made products should be managed. People tend to have a natural bias towards used products and organizations should try to manage these perceptions.

“One of the main issues is the perception from customers and in our industry I would say mainly from emerging economies. And I think that’s a normal reaction because obviously a lot of them would like to

have the technology that they have seen in what we call the developed world” (document A)

Another challenge to re-make resides in product design that doesn’t comply with activities to be

performed in the CE. Whereas in a linear model efficiency is based on a one-time cycle, re-make requires to process cores to enable multiple use-cycles. Therefore, it might even make sense to put more

materials into the product if there’s more savings and value preserved on the long run.

“One of the barriers is that most products aren't designed for re-making at all, which complicates activities and increases costs” (interview G, Removed content)

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5.2 RQ 2: What dynamic capabilities enable the successful implementation of

re-make opportunities?

Now we have defined the re-make opportunity along with the challenges, let us turn to those

organizational capabilities that enable organizations to implement re-make opportunities and overcome challenges. The results on dynamic capabilities have been structured according to Teece’s (2014)

classifications: capabilities to sense opportunities (including to shape), seize opportunities and transform to continuously align and realign.

Based on the findings, responses were grouped through coding and the author assigned overarching categories to these groups. The times a capability got mentioned by interviewees has been indicated in a table at each section.

5.2.1 Sensing capabilities

Sensing capabilities allow organizations to sense their internal and external environment to spot

opportunities like in re-make. In addition, a capability has been identified that shape the opportunity and determine the potential value to the organization.

Strategic thinking capability

Strategic thinking has been mentioned by 10 of the interviewees as being important in discovering new opportunities like re-make, which includes strategical visioning the future. Strategically moving your organization towards CE results in more resources and time devoted to discovering opportunities. Being one of the four loops in the CE, re-make has become part of a certain vision companies are pursuing.

“We decided to embed circular-economy thinking in our strategic vision and mission, both as a competitive necessity and with the conviction that companies solving the problem of resource constrains

will have an advantage” (document F)

Even though re-make has been going on for almost 15 years at Philips Healthcare, it got more attention when Philips decided to become one of the frontrunners in adopting circular principles. This all started when Philips’ CEO met with Dame Ellen MacArthur during a summit at the World Economic Forum. He became intrigued with the topic and decided to create a team of specialists from all sectors. This group of specialists allows Philips to spot new opportunities for applying circular principles in these different businesses.

“To help accelerate the transformation to circular principles, we created a center of expertise... and every business unit has a flag bearer there. This is important because the circular economy needs to be intrinsic in our end-to-end value chain and embedded in all our processes, metrics, and structures. This is integral

to our strategy” (document F)

Capability x mentioned

Strategic thinking 10

Leadership 8

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Without strategically embedding CE into the organization, new opportunities will barely or not present itself and the integration of CE impedes. Therefore, an organization’s capability to strategically embed CE into its planning is of important to spot opportunities like re-make. The strategic thinking capability has resulted in Philips Lighting exploring opportunities to re-make now.

Leadership capability

Another important dynamic capability related to strategic thinking is the leadership capability of a CEO and top management to steer the organization along the strategic direction towards the CE. 8 of the interviewees referred to leadership in the light of steering the organization towards a CE. Since it

concerns a complete system change, guidance from the organization’s strategic decision makers is highly important. It is important that the CEO and top management are showing strong leadership to steer an organization towards CE, which enables the identification of new opportunities like re-make.

CEO Frans van Houten has been one of the main contributors in introducing CE to Philips and is showing dedicated leadership in steering the organization towards this direction.

“It is very important that Frans van Houten has explicitly expressed himself about this topic. That support of the CEO, him talking positively about CE and raising attention, then you barely need anything else”

(interview E, Removed content)

Besides being a critical capability in sensing the re-make opportunity, findings indicated that the top management’s leadership capability is applicable to seizing (5 interviewees) and transforming (4 interviewees) capabilities as well. As Frans van Houten stated:

“We need a leadership culture that embraces and rewards a circular economy” (document D)

Along the implementation of re-make, leadership plays a stimulating and supporting role. Top management commitment is required to activate certain capabilities presented later in the findings section, which will be referred to. Therefore, the leadership dynamic capability plays a notable role in sensing, seizing and transforming.

Commercial research capability

Once new opportunities have been spotted, their potential value to the organization has to be

determined. 9 out of the 13 respondents referred to commercial research as being an important aspect in shaping the re-make opportunity. This is commonly achieved through conducting commercial research and start a business case development process.

“You need to do commercial research to see whether there is a market for it, whether your customers are susceptible to it and whether they will accept remanufactured goods” (interview G, Removed content)

The business case development processes involves most of the actors that potentially influence the opportunity directly or indirectly. A business case has to conceptualize and analyze the pros and cons associated with a new business development (Post, 1992).

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of refurbishment… End-to-end everybody should be involved in this process” (interview H, Removed content)

The business case development might become a complex and difficult task to accomplish. Especially in addressing opportunities in the CE, due to the lack of micro level indicators and metrics. The following perspective of the EMF interviewee provides a holistic analysis of the situation, which is valuable to point at the system importance here in the CE.

“On a macro level, the foundation has produced numerous report quantifying that size of the opportunity across value chains. On a micro level for an individual business, I would say it is still quite challenging to

capture the commercial value” (interview L, Removed content)

Being able to conduct proper commercial research and derive at a convincing business case is an important capability to assess whether the opportunity provides the organization potentially enough value to pursue.

Summarizing, the dynamic capabilities that enable organizations to sense and shape

opportunities like re-make are the strategic thinking, leadership, market sensing and commercial

research capabilities.

5.2.2 Seizing capabilities

Once the potential value of the re-make opportunity has been identified, there will be a go/no-go decision by the decision makers. If the organization decides to pursue the re-make opportunity, resource commitment is needed to actually seize the opportunity. This relates to the leadership capability

discussed earlier.

“Attention is translated into allocating resources and priority setting from the management in both controls and strategic integration” (interview I, Removed content)

Seizing the re-make opportunity is guided by dynamic capabilities that introduce re-make activities in the organization.

Acquisition capability

Knowledge can be acquired both internally and externally. Based on the assessment of the internal capability base versus what is needed, organizations can choose to acquire another organization that possesses relevant expert knowledge on related activities. The acquisition of Matracom by Philips in 2000 significantly impacted the refurbishment business for the Healthcare sector.

“15 years ago Philips acquired a company that did refurbishment of Philips systems. The reason being to capture the business that third parties, keep the brand value high and look at different markets and

segments we wouldn’t have noticed if just selling new products” (interview I, Removed content)

Acquisition 2

Project management 9

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Although merely 2 respondents stated the acquisition of Metracom, this capability is assumed to have played a notable role in fully implementing the re-make opportunity. A possible reason for not

mentioning this acquisition could be a lack of interviewee knowledge on this acquisition.

Project management capability

In order to organize for capturing value from the re-make opportunity, project management capabilities are regarded important. This capability includes the internal and external organization to start re-make activities.

“We have started different projects to look at refurbishment and how to approach the different aspects” (Interview I, Removed content)

Part of this capability is the structuring of the project team, which should contain those people that are intrinsically motivated to work on re-make. For example, because they contain certain personality traits that suit an entrepreneurial spirit.

“You need people who are open to new ideas, want to change the status-quo and are pioneers. There are many obstacles and resistance because everything is created linear and now you want to close the loops”

(interview I, Removed content)

The project team, along with other relevant stakeholders, should aim to create a culture where people see re-make as an opportunity and not a threat.

“Generally, Philips’ employees are sustainability minded. Looking at Personal Health, we have educated all people that sustainability is important. Therefore, most people have an intrinsic value to see circular

economy as ‘the right thing to do’ and are willing to devote time” (interview H, Removed content)

There might be differences between the Philips’ sectors concerning the intrinsic motivation of employees to work on CE related tasks. However, as stated, Philips has a long-standing history in sustainability, creating a common base for educating employees about CE and re-make.

An important aspect of the project management capability is the ability to develop a business model that enables the organization to capture value from the re-make opportunity. It could be part of an integral offering of CE aspects or mainly focus on re-make.

“I think the business model is most important in a lot of cases. Once you have the business model in place, it creates volumes of at least supply of products to revalorize (interview L, Removed content)

Other tasks related to the project management capability are pilot management, finding complementary skillsets and facilitate the internal set-up.

New product development capability

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“There is a crucial connection between re-make activities and the new design of products. In fact, the first design should take into account the re-make activities it will undergo in a later stage” (interview C,

Removed content)

Existing product design can be modified by deploying this capability and support the collaboration between departments involved in these processes. One of the interviewee’s expert knowledge in product innovation management noted an interesting concern, which could be resolved by having the processes in place to stimulate core return, for example enabled by the business model.

“I think disassembly is number one. Modularity is important in design, however, companies might be concerned this will help independent remanufacturers. You want simplified design, but also sufficient

barriers” (interview G, Removed content)

Developing guidelines is important to include re-make into the design rules of organizations, which can be part of overall CE design rules. At Philips, they have developed a design for CE (DfCE) tool that includes aspects to increase efficiency in re-make.

Summarizing, the dynamic capabilities that enable organizations to seize opportunities like

re-make are the acquisition, project management and NPD capabilities.

5.2.3 Transforming capabilities

Whereas sensing and seizing direct towards the re-make opportunity, transforming capabilities enable organizations to continuously align and realign internally to optimize the make business. Once re-make has initiated, organizations should keep finding ways to optimize processes and routines to derive at a higher value re-make business. There are several relevant dynamic capabilities to achieve this.

Knowledge management capability

Almost all respondents regarded knowledge management as being an important factor influencing the long-term success of re-make. This includes knowledge sharing to facilitate and learn from collaboration and gain value from the re-make business. Internally, knowledge should be shared to shape people’s perception on re-make.

“Especially for an adjacency or breakthrough innovation, when there is a lot of new innovation, it is important for people involved in this business to understand the mechanisms and processes. This is

merely possible if you effectively transfer this knowledge” (interview M, Removed content)

One of the re-make benefits is to increase product performance by learning from the returned cores. Internal knowledge sharing on these matters can be stimulated by structure reconfiguration. It could be very interesting from a R&D perspective to see how your assets behave in the field. This information could be feedback into the next iteration of the product, which is applied at Ricoh.

“I would position re-make very close to the manufacturing line. As companies develop their maturity in re-make, it becomes closer to the actual production line itself. Not only does it make sense from an

Knowledge management 12

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investment point of view, but also from the information coming back from the cores” (interview F, Removed content)

Findings show that both Ricoh and Philips Healthcare have relocated their re-make facility closer to the design and manufacturing line learned once they grew the re-make business.

Besides internal knowledge sharing, outward looking for improvements of the model could significantly contribute to the re-make long-term success. It concerns the ability of an organization to learn and create an ecosystem that increases the performance in re-make. Philips is collaborating with several organizations to share and adopt knowledge on CE and re-make. Appendix D provides an overview of all internal and external knowledge sharing platforms Philips consults.

“I think the biggest result from collaborating with these external parties for the last 2-3 years, is that we have reached the level where we internalized the knowledge and experiences of these partners. The new challenge is to integrate all the internal knowledge that is currently present on fragmented islands and

actively establish learnings from this” (interview M, Removed content)

Collaboration is key throughout and across the value chain to create a win-win for parties involved. CE entails finding new ways to collaborate with same-minded parties to communicate and strengthen the common message. Therefore, the ability to manage these knowledge flows is an important capability.

Incentive alignment capability

Re-make requires people to devote time on related activities. Motivating employees to engage on this might be harder compared to other new businesses since people tend to initially averse re-make.

“People want to sell new systems and look at the state-of-the-art technologies. Refurbished systems are premium, but concern older generation technologies to prevent cannibalizing sales of new technologies”

(interview F, Removed content)

Both Ricoh and Philips Healthcare stress the importance of selling these products as “technology -1”, to prevent direct competition with the new products. However, this can never be fully excluded.

Turning the internal perspective requires the right positioning of re-make. Intrinsic motivation is important to raise attention and understanding on re-make. It is important to stimulate the intrinsic motivation, but this is most likely not enough. In order to actually implement re-make, extrinsic motivation should be triggered. If these targets and incentives are not aligned, there is a higher chance that re-make will fail on the long term.

“Currently there are conflicting targets on both the linear and circular thinking and these incentive structures need to change. Top management should direct this transition towards more integral thinking

and change the target structure of the organization accordingly” (interview J, Removed content)

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Summarizing, the dynamic capabilities that enable organizations to transform are the

knowledge management and incentive alignment capabilities.

5.3 RQ 3: What operational capabilities enable the successful implementation of

re-make opportunities?

This paragraph will describe those capabilities that operationalize re-make. According to Teece (2014), operational capabilities allow organizations to achieve best practices and the findings will identify those relevant to re-make. Having access to these capabilities will increase efficiency throughout the process and organizations attain at higher value business.

In line with the CE principles, collaboration in the re-make loop is important, assuming not all operational capabilities have to be internalized by the organization. Collaboration could provide a complementary set of capabilities that create network benefits and entry barriers to competitors. We could state that the re-make process starts at product take-back and ends with a product resale. The activities in-between are categorized along four key operational activities, namely core acquisition, reverse logistics, re-making, and re-marketing. Next to these key activities in the re-make process, a key related operational capability is the predictive capability. Figure 8 depicts these capabilities.

Core acquisition capability

Interviewees stated the re-make process starts with (re)gaining access to the product in order to process them accordingly. Firstly, potential products for re-make have to be identified, which could influenced by the business model in place. For example, a leasing contract will require product take-back at the end of use-cycle. This will increase efficiency since more predictive and standardized processes on core

acquisition can be applied. In addition, product type can regulate core acquisition. For example, Philips Consumer Lifestyle might get market returns via retailers.

Capability x mentioned core acquisition 4 Reverse logistics 12 Re-making 9 Re-marketing 6 Predictive 7

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“We're getting a lot of commercial returns from the market, which are tested and classified as non-faults-found. We're looking at possibly replacing housing or minor components to put it back on the market”

(Interview H, Removed content)

Retailers are less involved in the core acquisition in other industries. For example, Philips Lighting Healthcare and Ricoh derive most value from B2B deals.

Reverse logistics capability

Once a product has been identified, it has to be moved from the end-user towards the re-make location. This is enabled by deploying reverse logistics, which could include tasks like de-installation, packaging, transport, inspection and storage. At Philips Healthcare, only Philips expert personal are involved in the de-installation and inspection of equipment to prevent any possibility of damage (document C).

“One important aspect in re-make are logistics. How to establish reverse logistics to get these products back. We are collaborating with logistics suppliers to optimize this process, which is crucial to properly

manage reverse logistics in a cost-efficient way” (interview C, Removed content)

Thus, the capability to organize reverse logistics efficiently is important to minimize overhead costs of processing the core.

Re-making capability

This capability includes all necessary activities to bring the core back to the desired quality level. Once the core arrives at the re-make location, it has to be cleaned, inspected, re-made, tested and stored. Philips Healthcare deploys several refurbishment centers in Europe and the United States.

“Philips engineers carefully inspect and test every component of the system. Because the refurbishing is carried out by Philips engineers on Philips premises, all work is done in accordance with the

manufacturer’s own guidelines, using original Philips materials” (document C)

Parts are cleaned, disinfected, repainted, and if necessary replaced with the latest upgrades. After this, the system is fully tested according to the latest specifications. The re-making capability usually requires high understanding of the products involved.

Re-marketing capability

Re-marketing concerns the activities involved to facilitate a second use-cycle. These processes will become more standardized over time, increasing efficiency. Re-marketing capability could include: sale, package, transport, installation and service. There will be overlap with existing new product processes.

“The purchase process, installation and service are identical to those for new equipment. There is a full warranty identical to that of a new system, ensuring a virtually risk-free investment and cost-effective

maintenance” (document C)

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“These kind of deals need different sales people and there are different gatekeepers involved. These deals are not discussed on a procurement-level, but with a department-head or CFO” (interview C, Removed

content)

In addition, the aftersales service on re-made products might play a more significant role to manage customer perceptions. Thus, the re-marketing capability facilitates the process from sales to aftersales service.

Predictive capability

Having the right IT system in place has been mentioned by respondents as the most significant factor in increasing efficiency for re-make. The predictive capability concerns the ability to gain insights on product status and handling to increase efficiency throughout all processes. The IT infrastructure should help to make sense from the data gathered.

“It is highly important to know what’s out there and find the optimum moment for take-back of products, so both the customer and Philips have the best deal” (Interview J, Removed content)

This capability enables organizations to gain product and market insights and match the supply and demand of re-made products.

Summarizing, the operational capabilities to increase efficiency in the re-make activities are core

acquisition, reverse logistics, re-make, re-marketing and predictive capability

5.4 Discussion

Before we apply the findings to Philips Lighting, let us first discuss the results and develop the capability roadmap.

Opportunities and challenges

As the findings indicate, there are multiple drivers that boost economic prosperity in re-make activities. This has been confirmed by the EMF (2012), who stated there are economic and environmental benefits in a CE. In line with Sabramomiam et al (2010), the findings showed that re-made products have a cost advantage over new products since you save production costs. Moreover, re-make products allowed Philips Healthcare to access markets that were previously out of reach. Vorasayan and Ryan (2006) found this enables organizations to gain market share.

Looking at the challenges, an interesting summary has been provided by one of the interviewees, who brought the challenges of incumbents down to a linear lock-in. Note that certain challenges might depend on industry or product type. For example, customer bias towards re-made products related to health and safety might be higher compared to a product like a photocopier or luminaire.

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Another significant challenge concerns product designs that don’t comply with design rules for CE and re-make. To specify, Balkenende and Bakker (2015) have identified several challenges related to this: “the complex relationship between product design and business models, technical versus economic lifetime of a product and its components, as well as insight in the behavior of users during product life and at the end of a product lifecycle” (p. 5).

Next, this study provided insights into the organizational capabilities for implementing re-make opportunities and were structured according to the classification by Teece (2014). In the light of this research, these capabilities have been linked to opportunities arising from the re-make loop. Dynamic capabilities

As Teece (2014) found, dynamic capabilities allow the organization to ‘do the right things’. This study relates to the CE and regards make as the right thing to do. It provides dynamic capabilities for re-make, which were defined as “capabilities that enable companies to sense and seize re-make opportunities and transform internally to optimize value capturing”.

Findings show that the dynamic capabilities to spot the re-make opportunity mainly relate to strategically moving the organization towards a CE. This research therefore provides more precise insights into the dynamic capabilities for sustainable development created by Wu et al (2012). They noted that organizations use these capabilities to implement opportunities that “generate

environmental and social values for the public as well as economic value for themselves” (p. 233). The results have shown that opportunities related to re-make fall into these same categories.

At Philips, strategic thinking enable the organization to spot opportunities like re-make. This is in line with Simon et al (2015) who perceived strategic thinking as a vitally important dynamic capability, defined as “the appropriate incorporation of longer term effects by practices such as envisioning the future and making trade-offs between short- and long-term goals” (p. 911). Findings showed strategic inclusion is one of the main challenges in re-make and this capability allow organizations to overcome this challenge. As a result of this capability, Philips has established a center of expertise to find new opportunities in the CE. According to Teece (2007), one of the main contributions of sensing capabilities is to filter information from different angles and estimate the likelihood of certain developments. This center of expertise has been established to focus on these aspects.

Related to strategically moving towards CE is strong top management leadership to guide the

organization in that direction and overcome the linear lock-in. At Philips, this has been of major impact since the CEO is personally dedicated to the topic. Teece (2014) confirms the importance of this