Barriers and enablers of circular business model innovation

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Barriers and enablers of circular business model

innovation

By

Thomas Collinson

S3870650

t.collinson@student.rug.nl

Supervisor & Assessor: Dr. Isabel Estrada Vaquero

Co-assessor: Dr. John Dong

January 2020

Master Thesis

MSc Strategic Innovation Management

Faculty of Economics and Business

University of Groningen

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Abstract

There is a growing need for organizations to adopt sustainable business models, the circular economy is proposed as a viable solution that provides economic and environmental benefits. The circular economy requires radical changes to existing business models of organizations and a process of business model innovation. There is a lack of academic research and understanding of how organizations innovate their business models for circularity. This study uses qualitative research through thirteen semi-structured interviews and secondary data to uncover what are the enablers and barriers of circular business model innovation. Results reveal that fully circular business model innovation is currently difficult and gradual changes to the existing business model are required. The extent and process of innovation will also differ by organization. Leaders setting a vision and strategy for circular business model innovation is identified as a key enabler. Various enablers are also identified, namely collaboration, experimentation, integration, networking and small projects. Barriers identified are often the opposite of the enablers. Scepticism and uncertainty about the circular economy are also important barriers. In comparison with the existing literature on business model innovation, this study highlights which perspectives are relevant to circular business model innovation. Differences and novel insights into the process are also uncovered. The enablers and barriers identified provide practical implications for organizations and policymakers.

Keywords: Circular economy; business model innovation; sustainable business model;

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1. Introduction

This paper examines how organizations can innovate their business models to the more sustainable circular models and what are barriers to this process. The circular economy is a system that aims to be regenerative, eliminating waste and keeping valuable materials in use as long as possible. The ultimate aim of the circular economy for organizations is to make closed loops in which resources are continuously reused, removing the need for the input of virgin materials (Ellen MacArthur Foundation, 2015). The majority of organizations operate business models that are unsustainable and environmentally damaging. They pose a risk to the life support systems of the planet and the continued operations of organizations (Antikainen & Valkokari, 2016; Geissdoerfer et al., 2017). Most organizations operate linear models, whereby resources are used then discarded, referred to as take-make-waste models. These models are unsustainable as they rely on non-renewable resources which are also environmentally damaging (Hobson & Lynch, 2016). The circular economy concept is growing in attention as a solution to the need for economically viable and sustainable business models (Kirchherr, Reike & Hekkert, 2017).

Radical changes to the linear business models of organizations are required as they are not compatible with the demands of the circular economy (Lüdeke-Freund, Gold & Bocken, 2019; Lieder & Rashid, 2016). Organizations operating linear models must undergo business model innovation (Lewandowski, 2016). The business innovation literature has various perspectives on what enables business model innovation. It is suggested that organizations make incremental changes through experimentation and learning (Khanagha, Volberda & Oshri, 2014). Having separate units or organizations to investigate and run new business models is also recommended (Christensen and Raynor, 2003). The notion of ambidexterity to allow for exploration at the same time as the exploitation of the current model is also a strategy (Markides, 2013).

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rarely addressed. Business model innovation can also be a source of competitive advantage that disrupts industries (Mitchell & Coles, 2003; Demil & Lecocq, 2010). Therefore, organizations can innovate their models to avoid being disrupted and attempt to attain an advantage. Combining this with the growing risk to the environment and operations of organizations, it is important to understand the circular business model innovation process. Exploring this innovation process will help identify what organizations can do to innovate and what barriers are preventing this. It addresses the lack of perspectives and understanding of the circular innovation process in the literature. It will also provide practical implications for the innovation process. Therefore, this paper addresses the research question:

What are the enablers and barriers of circular business model innovation?

To address this research question, this study uses a qualitative research method of semi-structured interviews. Thirteen experts on the circular economy and business model innovation were interviewed and secondary data gathered to support findings. Qualitative research and semi-structured interviews are appropriate when there is a lack of research into the phenomenon of interest (Etikan, Musa & Alkassim, 2016). The experts were able to provide rich data on the enablers and barriers of circular business model innovation.

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This paper is structured as follows. First, there is a literature review followed by the methodology in sections 2 and 3. Results are presented in section 4 then the discussion in section 5. Implications, limitations, future research, and conclusion are covered in section 6.

2. Literature Review

2.1 Sustainability issues facing organizations

The business models of the majority of organizations operate on a linear system, whereby resources are extracted, processed, used and discarded. (Van Buren et al., 2016). This is often referred to as a take make waste model. Many of these linear business models are environmentally damaging, creating waste during manufacturing, logistics, and usage (Moktadir et al., 2018). These business models are unsustainable as they rely on non-renewable resources which are also environmentally damaging (Hobson & Lynch, 2016). These linear systems are jeopardizing earths life support systems and are unsustainable long term (Antikainen & Valkokari, 2016; Geissdoerfer et al., 2017). This issue is compounded by increasing population size, urbanization, consumption, and consumerism (Antikainen & Valkokari, 2016; Hobson & Lynch, 2016). The linear system is causing price volatility and supply risk of scarce resources for organizations (Lieder & Rashid, 2016; Ellen MacArthur foundation, 2015). Therefore, the linear system is resulting in risks to the planet and the operations of businesses.

2.2 The Circular Economy

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regenerative by design and aims to keep products, components, and materials at their highest utility and value at all times” (Ellen MacArthur Foundation, 2015). This definition has been commonly adopted in academic literature and considers environmental and economic aspects of the circular economy (Lieder & Rashid, 2016; Geissdoerfer et al., 2017). This definition will be used for this study.

How circular business models will operate varies in the literature. The main aim is creating closed-loop systems, these are resource loops between post-use and production (Geisendorf & Pietrulla, 2018; Bocken et al., 2016). This creates a system of symbiosis where the waste of firms become the inputs of raw materials for other organizations (Mathews & Tan, 2011; Moktadir et al., 2018). This increases sustainability as resources are kept in use for as long as possible, maximising their value and allowing them to be reused almost endlessly (Antikainen & Valkokari, 2016; Van Buren et al., 2016). Fully closed loops are currently very difficult to achieve, there are multiple circular strategies proposed that focus on resource efficiency, prolonging the value of resources, closing and narrowing resource loops (Nußholz, 2017; Bocken et al., 2016). Approaches of doing so are; extending the life of products through refurbishing, repairing and reusing materials (Bocken et al., 2016). Products can also be designed to make this extension easier and for long life usage (Van Buren et al., 2016; Hobson & Lynch, 2016).

The circular economy requires reversed logistics that allow for the take-back of products and goods to enable their reuse (Lewandowski, 2016). Therefore, changes to the way organizations interact and offer products to customers are necessary (Bocken et al., 2016). It is proposed that organizations can focus on ‘product as a service’, leasing products to customers rather than selling ownership (Ghisellini, Cialani & Ulgiati, 2016). This is necessary as it allows for maintenance, repair, refurbishment, upgrading and redistribution necessary for a circular economy (Lewandowski, 2016).

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business models is staggering. Sectors of complex medium-lived products in the EU could see annual net material savings of up to 630 Billion USD, for fast-moving consumer goods this could be up to 700 Billion USD (Ellen MacArthur Foundation, 2015). It is also estimated that if a subset of the manufacturing sector of the European Union adopted circular economy models net material cost savings of up to $630 billion per year by 2025 could be realised (Liu & Bai, 2014).

2.3 Circular business models

Radical changes are required to linear business models in order for them to become circular (Lüdeke-Freund, Gold & Bocken, 2019; Lieder & Rashid, 2016). Therefore, a process of business model innovation is required to transition to a circular model (Lewandowski, 2016). Whilst there is extensive research into business models, there is no one accepted definition adopted by organizations (Shafer, Smith & Linder, 2005). In general, a business model represents how an organization creates value for customers, how they are organized to create value, how this value is delivered and captured (Teece, 2010; Zott, Amit & Massa, 2011).

The literature highlights the importance of organizations being able to innovate their business models. They are regarded as a source of competitive advantage and key to the performance of organizations (Zott, Amit & Massa, 2011). Firms that innovate their business models can provide new offerings and value to customers compared to existing models (Mitchell & Coles, 2003). New business models can disrupt entire industries, replacing old models and becoming the new standard (Demil & Lecocq, 2010). For example, Netflix was a new business model that disrupted the movie rental industry (Christensen, Raynor & McDonald, 2015). Low budget airline business models had a large impact on the airline industry (Chesbrough, 2010). Firms who develop superior models can get ahead of competitors who can then be slow to react or catch up (Mitchell & Coles, 2003).

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Pigneur, 2010). The changes required for the circular economy requires reconfiguration of these elements of the business model (Nußholz, 2017). The frameworks developed for the circular economy do not address how organizations go about the reconfiguration or innovation process. There is a lack of academic attention to the transition from traditional to sustainable business models within organizations (Aspara et al., 2011; Hall & Wagner, 2012). Indeed, Roome & Louche (2016) note that sustainable business models in the literature are mostly conceptual and do not address the process of change.

There are theoretically clear incentives for organizations to adopt circular business models. Linear systems are however the prolific form of business model being used by organizations (Hart et al., 2019; Korhonen, Honkasalo & Seppälä, 2018; Planing, 2015). In general business model innovation is a difficult task that organizations struggle with (Chesbrough, 2010). Transitioning to a sustainable model requires radical changes to the business model of an organization (Boons et al., 2013; Lüdeke-Freund, Gold & Bocken, 2019). The difficulty of innovating business models increases the more radical the required changes are (Bocken et al., 2016). As linear systems are the prolific models, this indicates barriers to CMBI. It is therefore important to study what can enable or prevent organizations from innovating their business models for circularity.

2.4 Business model innovation process

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For innovation, ambidexterity is a suggested strategy whereby an organization adapts to the external environment whilst exploiting existing opportunities (O'Reilly & Tushman, 2013). This allows organizations to innovate whilst exploiting their existing business models. Chesbrough, (2010) suggests a process of experimentation in co-existence with the current model. Christensen and Raynor (2003) highlight how the values and culture of an organization can lead to incumbent firms ignoring disruptive business model innovations. They focus on profitable incremental innovations but are disrupted when the new model eventually outperforms the current one. The culture and values of the organization prevent exploration of disruptive innovations, therefore, a breakaway unit or organization not constrained by this culture is necessary (Christensen and Raynor, 2003). The current business model’s organizations operate will likely have resulted in profitable positions, this can lead to path dependency, inertia and resistance to change even if a superior model is developed (Korhonen, Honkasalo & Seppälä, 2018; Liu & Bai, 2014).

Separation for business model innovation does bring about its own challenges. It does not allow for synergies of each model to be realised (Markides, 2013). A new business model can also result in creative destruction, disrupting the profitability of the organization’s existing model (Hall & Wagner, 2012). Various integration mechanisms are suggested in the literature to realise synergies between the two models (Markides, 2013). For example, a manager with links to both models can help integrate innovations (O'Reilly & Tushman, 2013). Others offer opposing options to separation, temporal ambidexterity allows members of an organization to investigate ideas at different times (Markides, 2013). Contextual ambidexterity is about providing the correct organizational climate to allow employees to investigate exploration and exploitation (Gibson & Birkinshaw, 2004).

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necessary, experimentation, provision of resources, changing perspectives and being supportive (Doz & Kosonen, 2010).

2.5 Research Gap

Identified in the literature review is the growing need for organizations to innovate their business models for circularity. This need is due to risks to the environment and operations of organizations. Various benefits may also be realised by organizations that operate circular models. Despite this, the literature so far has seldom addressed the process of CBMI. Whilst there is literature on business model innovation, it is not known how this process looks regarding circularity. The required business models are markedly different from those of the linear system. The current perspectives in the literature could support this process or not be relevant. Existing literature into circular business models is focussed on frameworks and strategies. These are similar to the static approach to business models described by Demil & Lecocq (2010). They provide a static image of their components, whereas a transformation view examines how organizations go about the innovation process and can provide practical implications (Demil & Lecocq, 2010). Despite the proposed benefits of circular business models, the linear systems are still predominantly used. Therefore, this research seeks to uncover what enables organizations to innovate their business models for circularity and what are the barriers. It will provide theoretical insight into the innovation process and thus uncover similarities or new areas compared to the existing literature. It will also allow for practical implications of circular business model innovation to be uncovered.

3. Methodology

3.1 Methods selection

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& Morse, 2015). The literature review provided an adequate picture of the necessary area of expertise participants had to have. Experts were defined as those with well-developed practical and/or academic experience with the circular economy and its implementation in organizations business models. Experts were chosen as the unit analysis as they were able to represent the phenomenon of interest, which is essential during sampling (Aken, Berends & Bij, 2012). Experts can be used when there is a lack of observable evidence on the research area (Etikan, Musa & Alkassim, 2016) and were therefore appropriate for this research. SSIs provide access to the knowledge, perceptions, and experiences of interviewees (McIntosh & Morse, 2015; Barriball & While, 1994).

3.2 Expert Selection

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Table 1. Expert & Interview data

Expert Background Interview Data

Expert & Interview data

Expert 1

Expert 2

Works for a government department dealing with the circularity of waste and recycling.

Date: 11th October 2019 Type: Telephone Interview Duration: 34 Minutes Location: United Kingdom Date: 16th October 2019 Type: Telephone Interview Duration: 80 Minutes Location: Netherlands Works for company specialising in technology for the circular economy

in organizations. Previously worked as circular business model innova-tion project lead for large organizainnova-tion.

Expert 3

Expert 4

University researcher and lecturer on sustainability, business models, entrepreneurship and the circular economy.

Date: 18th October 2019 Type: Skype Interview Duration: 68 Minutes Location: Netherlands Date: 21st October 2019 Type: Telephone Interview Duration: 24 Minutes Location: Netherlands Consultant for government ministry in relation to sustainability and

cir-cularity within organizations.

Expert 5

Date: 25th October 2019 Type: Telephone Interview Duration: 27 Minutes Location: Netherlands University researcher with expertise on circular economy, business

model design and experimentation.

Expert 6

Expert 7

Works for UK manufacturing company, part of team implementing cir-cularity into business model.

Date: 6th November 2019 Type: Skype Interview Duration: 88 Minutes Location: United Kingdom Date: 7th November 2019 Type: Telephone

Duration: 31 Minutes Location: Netherlands Consultant on the circular economy and its implementation within

or-ganizations.

Expert 8

Date: 12th November 2019 Type: Face to face interview Duration: 42 Minutes Location: Groningen Circularity implementation program manager for a manufacturing

company in the Netherlands.

Expert 9

Expert 10

Works as an educator and promoter of sustainability and the circular economy for a city region.

Date: 15th November 2019 Type: Telephone Interview Duration: 29 Minutes Location: United Kingdom Date: 4th December 2019 Type: Face to face interview Duration: 38 Minutes Location: Groningen University researcher focussing on internal capabilities needed for

cir-cular business model implementation.

Expert 11

Date: 16th December 2019 Type: Telephone Interview Duration: 22 Minutes Location: Netherlands Professor of sustainability with focus on business model design and

implementation.

Expert 12

Expert 13

Professor, Lecturer and consultant on sustainability and the circular economy.

Date: 17th December 2019 Type: Telephone Interview Duration: 33 Minutes Location: United Kingdom Date: 19th December 2019 Type: Telephone Interview Duration: 28 Minutes Location Netherlands Founder of consultancy companies that focuses on circular business

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3.3 Interview process and data collection

The SSI script was sent to participants in advance of the interview which provided time to become accustomed to the questions. Interviews took place between October and December 2019. They were conducted over the telephone, skype or face to face. Interviewing participants by telephone was often necessary due to distance and time restrictions. Telephone interviews provide flexibility and are a well-accepted form of qualitative interview technique (Irvine, Drew & Sainsbury, 2013; Sturges & Hanrahan, 2004). The script for the SSIs was developed after the literature review with main open-ended questions and a series of potential follow up questions. Open-ended and follow up questions are required to allow for additional information from interviewees (Aken, Berends & Bij, 2012; Adams, 2015). Recording interviews allows for identical replication during transcription (Barriball & While, 1994). Therefore, permission to record and transcribe interviews was sought beforehand. In total, the thirteen interviews resulted in 544 minutes of audio and 149 pages once transcribed. Experts often provided examples about organizations to back up their points. Were these examples could be corroborated with evidence from secondary sources, they are used in the results section to demonstrate expert points. These secondary sources are gathered from websites and reports from organizations.

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3.4 Data Analysis procedure

The use of SSIs requires interpreting what interviewee responses mean (Campbell et al., 2013). For data analysis, a general inductive approach was used as this allows for findings and dominant themes to emerge from the data (Thomas, 2006). Each interview was accurately and fully transcribed after it was conducted. Once interviews are transcribed they must be analysed for emergent themes and a process of coding is necessary. Multiple readings of the data are required before analysis to become familiar with the content, themes and to not overlook connections (Thomas, 2006). Therefore, the first step after transcription involved reading each interview multiple times to become familiar with the content and start to think about emerging themes.

The coding process’ of Burnard (1991) and McIntosh & Morse (2015) were used as guides for the coding procedure as they address the coding process for SSIs. The first stage of coding was to go through each interview transcript and assign broad labels and headings to words, phrases or sentences. This allowed for broad general themes to emerge in each transcript and for common themes discussed between participants to be identified. These labels and headings were then placed into broad categories if they shared similar themes and concepts. This process was conducted multiple times and categories were carefully examined to spot similarities and differences. These themes were then placed into first-order concepts. The use of first-order concepts, second-order themes and aggregate dimensions of the Gioia methodology are used for data presentation (Gioia, Corley & Hamilton, 2013). There were twenty-six first-order concepts identified, enablers and barriers were separated into their own categories.

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Table 3. Interview Data supporting Second-Order themes

Interview data supporting Second-order themes

Second-Order theme Supporting Evidence

Long term perspective “There are some companies that have improved their products quite dramatically when it comes to circulari-ty and they did not put that extra cost to the customer, that is I think a strategic decision to take because they were convinced that in the long run, those costs will decline eventually and then they can take those learnings to other product groups.” (Expert 7)

“There are companies, shouting, they get it done [Circular model] in five years, but I don't think that's realis-tic. We are in the North, we are quite honest and so we only say what we really think and so realistically 10-15 years.” (Expert 8)

“If you don't have yet a clear vision, also if you have not yet developed the right tools to at least know a little bit of how the future will look like. Not in five years but in 10, 15 in 20, 25, so longer ranges, then your ap-proach may be with the right intentions but wrongly focused. So in the end, in 20 years or in 25 years, you won't be prepared to face the challenges of that future that you encounter and that you didn't prepare for.” (Expert 2)

“You have to be [as a manager] talking with the other managers in the company, get them on board with the projects.” (Expert 8)

“So if you have cultural barriers, you need to overcome those barriers with the right leadership. The right leadership is not just about having the right information, the right materials, the right product, but also like something innate to who is doing that leadership role.” (Expert 2)

“If you have people that are not in a position that they can actually implement stuff, then it's getting really difficult to actually get people to join in on sustainability or to changing the business model.” (Expert 13) Lack of vision and strategy _{“It's a very cynical way of thinking about it, but it's also the fact that everything always comes back to money.}

You always have to find the business case for everything.” (Expert 6)

“We are very locked in into our current conventional comfort zone. I mean, and we don't really want to step out unless, well the new situation is better, but then again, there's always a risk that it’s not, so making the transition is, well it's risky.” (Expert 3)

“The stage we're in, in the transition, it's really nice because the playing field is getting shuffled. We are in contact with companies now, speaking about collaboration, which were basically enemies a few years ago.” (Expert 8)

“It's very difficult to do because the business networks that we have, you know, like when I go to a business network, it's the [specific industry] network. And actually, what we need is the everything network for the circular economy.” (Expert 12)

“Finding the right networks is difficult for most company’s, suppliers are not practicing circular economy themselves. That means you have to look more for those partners.” (Expert 9)

“Partners are very important for the company to be able to make a circular product, but also to be able to design and actually implement the circular business model because in circularity it's relatively new, it started already quite a long time ago, but it gets more hip now. So, companies are actually doing something now. So, the investments are often quite big and also the new knowledge that's needed is quite a lot.” (Expert 10) Managerial and leadership

support

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Table 3 Continued

Interview data supporting Second-order themes continued

Second-Order theme Supporting Evidence

Experimentation “Most of the materials have to be scaled up and need more development to lower the producing costs.” (Expert 8)

“Let's do [When innovating] business modelling and then realize what's the investment we will need and what will be the savings. Also, let's try, let's just start with our R&D, let's see if it's functional to do these [Innovations].” (Expert 2)

“What is really important is experimentation, that kind of a capability right, that trial and error capability within organizations.” (Expert 5)

Lack of capabilities and apprehension

“Often times you know it's perceived a bit as a waste of time I think. Also, there is no real incentive for compa-nies to collaborate, because they have their own business going on and that's what they focus on, that's what they are good at.” (Expert 9)

“That’s the thing why people stop [innovating], they cannot find that many partners and they're like well if I do this alone it's very risky, so maybe I should also stop. And of course, when they start exploring it and it's very expensive then they stop.” (Expert 10)

Develop business model

change capabilities “You have to start somewhere and appointing one person for circularity is, I think is a good start because also sometimes you see they want to do something with circularity, but no one really has the time to do it. So, no employee gets a time or hours to get involved in circularity and that's a big issue. So that could of course be solved by having a separate department, but in the end, I feel like it has to be integrated in the whole organiza-tion.” (Expert 10)

“You need at least a centre of expertise to lead on these sorts of methods. And if you want to be really, properly integrated circular business model, I think there needs to be work done on a strategic level. Otherwise it can just become another aspect of marketing and green-washing there is a lack of true business model change.” (Expert 11)

Start Small “In the beginning, I would say to start with this low hanging fruit options, so easy things you can do and maybe with that build enthusiasm in the company.” (Expert 10)

“Build enthusiasm in the organization [With project]. Even when a manager sees more risks you have the whole organization saying, we want to do this because they build enthusiasm for it. So even as a manager you cannot change that easily.” (Expert 10)

“There will always be resistance I think, regardless of what you do, like there would be resistance to status quo as well from some points. But like if you can show good effects from your pilot, so to say, if you can show good results from that it will obviously be easier to keep going.” (Expert 6)

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4. Results

This results section explains each aggregate dimension using the relevant second-order themes from the data structure. Each dimension has two enabling themes and one barrier. Results first start with the organizational vision and strategy. Managerial & leadership support and a long-term perspective are crucial for the CBMI process. How a lack of vision and strategy can act as a barrier is then explained. This is followed by collaborate & experiment and its second-order themes. Lastly, why and how organizations should integrate circularity and barriers to this are presented. Table 4 provides a summary of the key findings.

4.1 Organizational Vision and Strategy

Enablers

4.1.1 Long term perspective.

“When you work in circular economy, what is actually the goal? Like what do we want to achieve with this because that's not always very clear for everyone. Then it goes beyond just being like a fancy concept that people know when to work with because it's trendy at the moment.” (Expert 5)

“In 1994 our company began an awe-inspiring journey. We set out to transform our business to have zero negative impact on the planet by the year 2020, something we called Mission Zero (Interface, 2019, p.4.).”

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quote from Interface demonstrates that they set quite a radical vision that ultimately paid off. Other organizations set lesser targets. For example, AB InBev has set a target for 100% of its packaging to be recyclable or made mostly from recycled materials by 2025 (AB InBev, 2018).

Once a vision and targets have been set, a strategy can then be developed to achieve these. CBMI will also require leaders and managers to change their perspectives concerning the business model. The fundamental nature of a business model will change including how organizations create and deliver value. This will require a greater focus on the sustainability of organizations and their interaction with the external environment.

“Circular economy transformations are things that happen in the long run, not necessarily a short one. If you do not have senior management commitments and board level commitment, then it's going to be a pretty bumpy ride I think that's one key elements for success.” (Expert 7)

“Moving to recycled options across all of our raw materials, company-wide, takes commitment, patience and long term partnerships. In 1997 we began working with one of our yarn suppliers to develop and have access to recycled nylon; by 2010 we were making carpet with 100% recycled nylon (Interface, 2019, p.18).”

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Table 4. Summary of results Bar riers Enablers Theme _Organiza tional Vision & str at egy Summar y of r esults Long t er m perspec tiv e: Essen tial leaders ha ve long t er m vision and de fine wha t cir cular ity means

to their business model

, then put in plac

e str at egy t o w or k t ow ar

ds vision. CBMI is a long-t

er m pr oc ess , leaders need t o ack no

wledge this and pr

ovide c on tinued suppor t. M ak ing o ffi cial c ommitmen ts and tar gets f

or CBMI can keep c

ompan y ac coun table and pr ev en t pr ojec ts being abandoned . M anager

ial and leadership suppor

t: A

ctiv

e in

volv

emen

t of leaders and managers nec

essar y t o ov er come cultur al bar riers . M ust pr ovide r esour ces and fr eedom t o emplo yees f or CBMI pr oc ess . Likely need t o educa te emplo

yees on the cir

cular ec

onom

y and its impac

t on the c ompan y. Ac tiv e par ticipa

tion of managers is impor

tan

t f

or gar

ner

ing wider suppor

t in ter nally and e xt er -nally .

Lack of vision and str

at egy : Or ganiza tions ar e still sc eptical of bene fits of CBMI. This is c om -pounded b y a lack of e xamples . Sc epticism and f ocus on shor t t er m pr ofi ts can pr ev en t vision and str at

egy being put in

plac e. Collabor at e & Exper imen t Collabor

ation and net

wor king: Is needed t o dev elop the k no

wledge of CBMI tha

t an or

ganiza

tion

does not possess

. Need t o use br oad sear ch sc ope t o find par tners f or cir cular net wor k and solu -tions t o pr oblems . C ollabor ation with c ompetit ors ma y be nec essar y f or standar disa tion. Collabor at e with like -minded par

tners who shar

e similar vision of cir

cular ity . Exper imen ta tion: Nec essar y f or or ganiza tion t o disc ov er ho w the cir

cular business model will op

-er at e and wha t is or is not possible . T he e xt en t of e xper imen ta tion will v ar y depending on an or -ganiza tions siz e and r esour ces . Exper imen ta

tion can help optimise pr

oc esses and r educ e c osts . Exper imen

ting with cust

omers and end users is highly impor

tan

t as they ar

e crucial par

t of fully

cir

cular business models

.

Lack of capabilities and appr

ehension : Or ganiza tions ma y lack nec essar y c ollabor ation and exper imen ta tion capabilities . CBMI r equir es new w ay s of w or king which or ganiza tions ma y not be used t o. Ther e is unc er tain ty about ho w cir

cular business models will oper

at e, or ganiza tions do not wan t t o in

vest under unc

er tain ty or ha ve r esults bec ome r edundan t. In teg ra te C ircular ity Dev

eloping business model change capabilities:

Put in plac e individuals , teams or units t o in vesti -ga te CBMI and in teg ra te it in to or ganiza tion. I nt eg ra tion essen tial t o pr ev en t isola tion fr om r est of business model . P roc ess of c on tinual lear

ning and incr

emen

tally adding cir

cular ity in to business model . Need t o c on vinc e other emplo yees t o adopt cir cular ity with e xamples , c ommunica tion, educa tion and tr aining . Star t small: Ha

ving small achiev

able pr ojec ts demonstr at es cir cular ity w or

ks and can secur

e c on -tinued suppor t. Ha ving a smaller f ocus pr ev en ts star ting pr ojec ts tha t ar e t oo big t o achiev e cur -ren tly . Resistanc e: C ur ren t cultur e can cause r esistanc e fr

om managers and emplo

yees . C om -pounded b y need f or changes t o job r

oles and lack of understanding of the cir

cular ec

on

-om

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Leadership making official commitments and targets for circularity within an organization was regarded as an important action. Having commitments and targets protects against CBMI being abandoned due to short term vision or change of leadership. It also signals to those internally and externally that circularity is important to the organization. An example of this is the ‘circular manifesto’ signed by KPN and major suppliers, in which they agree to work together to create circular hardware products by 2025 (KPN, 2017). Such a public announcement not only keeps the organization accountable but can incentivise collaboration with external suppliers.

The existing culture of an organization can help in setting a vision for circularity. Experts noted that having a culture of sustainability, experimentation or continuous change can also assist in implementing CBMI. For example, Patagonia has won awards for its circularity implementation (Byars, 2017). Indeed, they have always had a strong focus on using minimal resources and reducing waste, with increasing environmental pressures the organization has taken business model innovation in its stride (Patagonia works, 2018).

4.1.2 Managerial and leadership support.

Support from leadership for the CBMI process was regarded as highly important. A major barrier to implementation was resistance to change due to the existing culture. Leaders and managers can supersede this with their power and ability to implement necessary changes required. It is also important that CBMI efforts are provided necessary financial and resource support. Providing employees with time and freedom for this process is essential.

“I think that buy in from management is very, very important. And not just in terms of getting the CEO to sign a paper, that's fine, but actually getting the people who are sort of in the middle between the CEO and the people actually working on this stuff too.” (Expert 6)

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“[Innovation process] Needs commitment, leadership, you know, believe in the cause, persistence, starting with something small that can grow to something big.” (Expert 2) The interviews also revealed that the circular economy is still an emerging concept in organizations. This can result in a lack of knowledge of what the circular economy is. Leadership must make efforts to educate members of an organization on what the circular economy is and how it will impact their job. Interface report that they made extensive efforts to educate employees on the organization’s sustainability efforts and its vision (Interface, 2019). Similarly, Heineken has implemented education to employees via their ‘think circular’ strategy in facilities operating with circular principles (Heineken N.V., 2018).

The active participation of managers with circularity projects and garnering support was another important theme to emerge from the interviews. More extensive CBMI requires internal and external collaboration. Managers are essential in convincing others to participate in the CBMI process. This is because managers have the skills, authority, and reputation to achieve this. The long-term nature of the circular economy also requires long term support from managers. As an example, Interface report that achieving their circularity vision took 25 years and extensive experimentation, trial, and error (Interface, 2019). Projects can take many years and not have intended results. Management acknowledging employee’s efforts and capturing learning even if projects are not successful is needed.

Barriers

4.1.3 Lack of vision and strategy.

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because we don't have a carbon pricing mechanism that's ambitious enough. So as long as that regulatory framework is not in place we don't need to talk about the circular economy a lot.” (Expert 5)

One of the most important barriers identified to CBMI is a lack of action from leaders and managers. Interviews revealed how organizations are still very sceptical of the benefits of circular business models and view the change process as complex and risky. This is compounded by a lack of examples of organizations that have implemented extensive CBMI. This uncertainty results in a lack of commitment from organizations and waiting for others to begin the transition. This creates a paradox whereby successful examples of circularity will encourage others to also adopt circular business models, but no one is committing to the process first.

Experts also highlighted how for many organizations implementing a circular business model is simply not financially viable. CBMI will involve committing finances and resources to projects, often for a promise of long term benefits. Organizations with a focus on short-term profits are unlikely to take on these risks and might not have the resources to do so. Organizations will focus on the current profitable linear business model until circular business models are able to offer more value and profitability.

4.2 Collaborate and Experiment

Enablers

4.2.1 Collaboration and networking.

“[Organizations need to say] We simply don't know; how can we learn from you and how did you go about it? Can we pay you a visit or can we talk to some of the representatives or officials of your network? So, we also have to make these experiences available to others and preferably for free.” (Expert 3)

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“The internal departments within a company need to be more connected and integrated more with circularity, such as design teams working with purchasing.” (Expert 11) Collaboration and networking were brought up as highly important aspects of CBMI. There are simply not enough practical examples or frameworks organizations can use for this process. Organizations are highly unlikely to possess or develop the necessary knowledge internally either. Organizations conducting broad collaboration and networking is an important method of obtaining new knowledge from others to use in their own innovation process. This can also help organizations find solutions to issues they face with their innovation efforts. Furthermore, the nature of the circular economy requires operating with other organizations. Collaboration was therefore identified as essential to not only finding solutions but developing them together. Organizations must also be willing to share their own knowledge on circularity with others as collective knowledge and experience will ultimately benefit everyone.

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between departments and teams was also regarded as highly important due to the integrated nature of circular business models.

Organizations must be proactive with collaboration and networking efforts. This requires actively scanning the external environment for opportunities to collaborate. Partners or sources of information can come from a variety of areas. Organizations need a broad search scope to find these. Experts highlighted external sources that facilitate collaboration such as the Circular economy club and the Ellen MacArthur Foundation. There are also regional support and opportunities for collaboration. An example provided by multiple experts was Circular Friesland in the Netherlands. This association brings together organizations and entrepreneurs for networking, problem-solving and circular business opportunities (CircularFriesland, n.d).

“Let's start to be more competitive and less competitive in the way we approach each other because you know, in 10 or 15 years [lack of] raw materials, then we won't be able to produce [product] at all.” (Expert 2)

Collaboration with competitors was consistently identified as important for innovation. A fully circular economy requires standardisation of products and materials to allow for collection and re-use. Therefore, collaborating with competitors can help to begin standardisation and also serve as a source of learning in general.

4.2.2 Experimentation.

“Experimentation is really about generating ideas for what they can do and then testing those ideas, validating them. And there are different approaches for that, like in a start-up as an example and so I think experimentation capability is one of the biggest factors.” (Expert 5)

“They [organizations] always need to focus on providing superior value. You know, making it better, making it more convenient, making it cheaper. If that’s not the case, then customers won't adopt it.” (Expert 4)

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It was identified that how circular business models will operate in practice is not yet certain and will differ depending on the organization. A process of business model experimentation is required in order to figure out what will and will not work for organizations. Experts identified that organizations will need to experiment with different elements of the business model such as materials, products, revenue streams, value chains, and financial models. Experimentation is also necessary to optimise processes and reduce costs to make the business model profitable. The knowledge gained from experimentation must be captured and applied to other areas of the organization for more extensive business model innovation.

Whilst experimentation can be expensive, it was highlighted how even small changes can be enacted that will benefit an organization. These included obvious cost savings on energy, material cost reductions and reusing goods. Therefore, experimentation is also important even for organizations with less extensive CBMI targets. Importantly with experimentation, experts highlighted how results and learning can encourage further experimentation and innovation than originally planned.

“Of course [Circular economy] needs your customer to behave accurately in alignment with your business model. So, I think then you really need to involve them to make sure they will behave in an appropriate way. And that I think it's maybe a bit underestimated sometimes by companies also how difficult it can be to do that with your customers.” (Expert 10)

“I think it's critical that the users be involved because they are going to be the ones actually using a product or service in the end and especially with sustainability, I think you run the risk of rebound effects and unintended consequences if you are not including users in the innovation process.” (Expert 11)

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Barriers

4.2.3 Lack of capabilities and apprehension.

“They also have to be part of the right networks. That may also be an issue. So, it's not only the fact that they don't want to, but also the fact that they simply don't know how, not part of the right networks.” (Expert 3)

“Sometimes you see projects meeting initiatives from one angle for the company and then suddenly during the project they realize that they need other parts of the business as well. What happens then of course, is that those other parts of the business are like yeah, you should have involved us from the beginning. Why didn't you do that?” (Expert 7)

“Many companies are really just not used to that mode of working. You know, that all of a sudden, it's about inter organizational collaboration. It's something that’s not there, there is often times no mechanism for that within companies.” (Expert 5)

Interviews revealed how many organizations might not possess the collaboration or experimentation capabilities necessary for CBMI. This can prevent them from searching and finding the right partners and solutions for innovation. A lack of knowledge of circularity can compound this issue. If the subject is not understood by managers and employees there can be less incentive and enthusiasm about collaboration or experimentation. There is also a lack of external assistance for organizations to network, although this is growing there is still limited platforms organizations can make use of.

“People are more worried about going down a different route, making all the changes buying in, starting a new technology and then down the line finding out that actually that's not better.” (Expert 1)

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want to invest in something that is R & D, they want to make sure that the results will be positive.” (Expert 2)

Uncertainty about the outcome of experimentation efforts was identified as a barrier. Research and development can be expensive and organizations will be less likely to invest with uncertain outcomes. Circular business models are currently in an exploratory phase with uncertainty about their outcomes and practicality. Experts highlighted the difficulty in having an organization be the first to commit to experimentation and innovation. Organizations do not want to be the first to invest and only to find out they cannot use the results or are not using the eventual industry standard. There is no standardised third-party accreditation for products or materials in industries which was identified as important for encouraging circularity.

4.3 Integrate circularity

Enablers

4.3.1 Develop business model change capabilities.

“Some people might be resistant to it just for general kind of resistance change or people might not understand what it is. So, to start with, there's a lot of education that you need to do, if you listen to some people who've been involved in that, they'll say, you know, you do have to get good at explaining why.” (Expert 1)

“What we usually see is that a lot of companies have some sort of a support department or staff unit around sustainability. As long as you keep the topic too much in a separate support or start unit you sort of prevent yourself from embedding it in the company. I'm not making the suggestion that we should stop with the sustainability units, not at all, you need to find a way to embed circular economy throughout your entire organization.” (Expert 7)

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Having capabilities to change the existing business model by integrating circularity was an important theme from the interviews. Having individuals, teams or departments tasked with investigating the circular economy and how it can be implemented into the organization was a common theme. This again stems from the emerging nature of the circular economy, organizations need to develop the necessary knowledge of what it is and how it can be implemented within their business model. All experts stressed the importance of not having these individuals or units become isolated from the rest of the organization. This is because circular business models require interaction and integration across the organization.

How these individuals or teams operate in relation to the main business model will vary by organization and the extent of the CBMI efforts. It is first important to develop the necessary knowledge and experiments for circularity. This can then be integrated into the organization’s business model. Experts highlighted how it is a continual and gradual process of learning then implementation. The individuals or units are important for convincing other employees and areas of an organization to adopt circularity. This requires extensive internal and external communication and having evidence of successful circularity is an essential part of this process. With CBMI the roles of employees will ultimately have to change, requiring education and re-training. Educating other members of the organization on what the circular economy is, how it is being adopted in an organization and how it will impact them is a necessary step.

4.3.2 Start small.

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complex and difficult process. Starting with projects that are too big or challenging can result in failure and becoming discouraged.

Barriers

4.3.3 Resistance.

“I don't believe that there's technological barriers as strong as cultural barriers. I don't believe that there's legal barriers that are stronger than cultural barriers. I believe that's the biggest one.” (Expert 2)

“I would say the biggest one probably is sort of, the old guard if you get what I'm saying, they're like, you will have people in strong roles. They’ve been in companies for a long time who will basically say, well there was an environmental craze in the early 2000's then the downturn hit and no one cared about it. So that's going to happen again is the basic gist of what they're saying.” (Expert 6)

Experts identified how any changes within an organization will likely face resistance from managers and employees. The existing culture and routines were identified as a potentially strong barrier to CBMI. This can be especially prominent for the circular economy as it is a new concept with a lack of understanding that will require changes to job roles. This can lead to resistance with integration efforts which is problematic as extensive internal collaboration is needed. The nature of the CBMI makes it a long, difficult, uncertain and possibly costly process. This can make it difficult to justify CBMI when the current model is still profitable.

5. Discussion

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organization. This section explores the findings in relation to the research question. First important findings about the nature of the CBMI process are discussed, followed by the enablers and barriers.

5.1 CMBI process

An important point from the results is the nature of the CBMI process for organizations. Fully circular business models or closed-loop systems are currently not possible or extremely difficult for most organizations to implement. Therefore, CBMI will be an incremental process for the majority of organizations. This is more in line with the closing and narrowing loops strategies discussed by Bocken et al. (2016). Whilst it would ideal for organizations to make sweeping radical changes, this is not practical or possible. For organizations, CBMI will be a gradual process of learning and implementation. Evident from the results is that the extent of CBMI will vary by organization. This demonstrates the need for a contingency perspective regarding organizations CBMI processes. For example, some organizations might not have the finances or resources available for extensive changes whereas those such as Heineken and AB InBev do. It is also important to note that enablers and barriers will vary by organization. Some organizations might have a positive culture and action towards sustainability such as Interface flooring and Patagonia. Other organizations will have greater experimentation and collaboration capabilities required compared to others.

5.2 Enabling circular business model innovation

The enablers of organizational vision and strategy is an essential first step for CBMI. A vision is necessary for a strategy to be implemented to achieve it. Without either then there will be no process for organizations to begin CBMI. The other enablers will not take place without first having this vision and support. In line with the contingency perspective, the vision and strategy put in place will have a fundamental impact on the process of CBMI. Interface flooring for example put in a vision that required complete business model transformation. Other organizations such as AB InBev are implementing changes to their packaging.

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innovation process. Employees must be provided the time and resources to investigate CBMI. Active support of managers for enacting change and convincing others to join in the process is also important. The need for managers to convince others to join the innovation process suggests involvement with innovation efforts to develop the necessary knowledge and foresight. The vision and strategy of organizations can, of course, be open to change as discoveries are made from experiments, collaboration, and projects.

The enablers of Collaboration & Experimentation and Integration also uncovered practical steps organizations should put in place to enable CBMI. Collaboration and experimentation are essential for developing the necessary knowledge and practical examples for implementing circularity. This is in line with McGrath (2010) who notes that, experimentation can challenge assumptions and pilot change within organizations. Collaboration allows for the discovery of networks and partners that are essential for circular business models. It appears that collaboration can also provide the benefit of discovering new business opportunities as identified from collaboration projects such as circular Friesland.

An important insight from the results is that the integration of circularity into the business model is essential. Therefore, operating two separate models is not a strategy for CBMI, changes to the existing ones are needed. This is logical as the issue facing organizations is sustainability, therefore operating two models defeats the purpose. Having an individual, team or unit to investigate circularity is an important step recommended by experts. Whilst this seems initially counterintuitive the results suggest it is important for organizations to first develop knowledge and practical examples of how circularity can be implemented into organizations. This is then integrated incrementally into the organization’s business model. This aim is to then gather wider support and participation for CBMI across an organization.

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5.3 Barriers to CBMI

Each aggregate theme also revealed barriers that prevent CBMI. Most of the barriers are the opposite of the enablers. For example, not having the capabilities for experimentation, lacking a vision for circularity and a culture of resistance rather than support. The enablers identified, therefore, can also be seen as solutions for organizations facing these barriers. The enablers could apply to barriers in different themes. For example, leadership action and vision can overcome cultural barriers of integration. This suggests that for a successful CBMI process, organizations must be able to identify the enablers and barriers that are present.

The barriers do indicate a paradox however that appears difficult to resolve. It is easy to say that organizations can simply enact the enablers, in practice this is unlikely. In general, organizations are uncertain of CBMI and how the outcomes will look. Most organizations will not implement changes without a clear business case. This creates a paradoxical situation of organizations waiting for others to implement CBMI first. It is difficult to see how organizations will be incentivised to take a long-term perspective without a clear business case. As the results revealed, an existing profitable business model can lead to resistance when implementing changes with uncertain outcomes. Furthermore, if the barriers lack of vision and strategy are in place, it is difficult to see how this perspective will change. Without a culture that welcomes change or strong leadership support, having organizations begin the process of CBMI appears unlikely.

6. Implications & Conclusion

6.1 Theoretical Implications

This study provides interesting academic insight into the process of CBMI for organizations. This section compares existing literature on business model innovation with the results of this study. It is able to reveal which perspectives are similar and relevant to CBMI. It also provides novel insights into what these perspectives must entail for CBMI and how this differs from the existing literature.

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of the innovation process. Whilst the literature has a variety of perspectives on the innovation process, this study shows the actions and cognition of leadership can be prioritised as the first and essential part of the CBMI process. It also reveals that long-term vision is a crucial element of managerial cognition for CBMI. The study supports literature such as Christensen and Raynor (2003), that organizations can face resistance to change, especially if the current culture and operations have resulted in a profitable position. Importantly, the study identifies enablers that could potentially overcome these barriers such as experimentation, integration, education and small projects. It also reveals that leaders and managers must be an active part of the innovation process.

The CBMI process was revealed to be long term and incremental, requiring experimentation, collaboration, and networking. This supports the literature that highlights the importance of experimentation, continuous learning and incremental changes (Andries, Debackere & Looy, 2013; Khanagha, Volberda & Oshri, 2014). The elements of the experimentation process including internal and external collaboration suggested by McGrath (2010) are also relevant. For CBMI however, collaboration, networking and, experimentation are essential parts of the process. The results stress the importance of having these enablers in place. Indeed, a lack of experimentation and collaboration was identified as a barrier to CBMI. The study also reveals the nature of these enablers. For example, experimentation should take place with customers, collaboration and networking must use a broad search scope.

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6.2 Practical Implications

This study has revealed important implications for leaders, managers, and employees of organizations for the CBMI process. It also provides practical implications for policymakers who want to encourage the adoption of circular business models. Leaders must develop a vision and strategy for this innovation process. They must recognise that business model innovation is necessary, how circularity will look for their organization and what strategies can they put in place to achieve this. This suggests leaders need to develop knowledge about circularity necessary to do so. Leaders and managers must also be able to identify what enablers and barriers currently impact the organization. This can then allow for a strategy to use their enablers and attempt to overcome barriers. Leaders and managers must also recognise that CBMI is a long-term process and provide continued support. This is both in terms of resources and supporting employee efforts.

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6.3 Limitations and future research

A limitation of this study is that the findings do not focus on specific examples in detail. Whilst experts provided real-world examples of CBMI, it was often difficult to find secondary sources about those companies. This was especially true for barriers as organizations are less likely to publish about their own innovation difficulties. Interviewees varied in their backgrounds and experience, therefore the findings are quite broad. Detailed case studies of companies could provide in-depth and rich practical examples that would further add to the research area. Future research could examine in greater detail the actions and role of leadership in enabling CBMI. It is highly important for them to enact the innovation process, what first causes leaders to make this decision was not revealed during this research. This could potentially uncover ways to facilitate more CBMI efforts in organizations. For example, does it stem from the personal characteristics of leaders or is CBMI suggested to them from others? Each industry will face its own challenges with regard to innovating business models. Future research could examine the enablers and barriers of different industries. This could be valuable to those facing the most risk through price volatility and resource scarcity.

6.4 Conclusion

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Barriers and enablers of circular business model innovation