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The circular economy (CE) is increasingly hailed as the cornerstone of a sustainable future. With this approach, one business’s waste becomes another’s feedstock or input. CE business models include:
- Manufacturers using recycled materials to make products (e.g. Interface Carpets)
- Reverse supply chains, where used products are collected and remanufactured (e.g Xerox printers)
- Sharing models where assets are shared among users (e.g. Airbnb).
This new economic paradigm is strongly promoted by policymakers around the world, especially in the EU and China.
The circular economy sounds simple. In contrast to a linear economic model where products are discarded after use, a circular model aims to reuse and recycle materials. But in practice, transitioning to circular economy brings many challenges.
My colleagues Minna Halme, Laura Albareda, and I studied three CE systems in Finland, Spain and the USA, developing in depth case studies. These systems covered various geographical scales (local, regional and national) and included diverse participating organizations: large industrial firms, SMEs, and startups, as well as public sector organization and NGOs.
We found challenges around information sharing, scaling, and managing participant diversity. The circular economy requires businesses to think and act as part of a system, not just as individual companies — and this can be a new approach. But we also found innovative solutions that offer models for other CE efforts.
Here are our lessons for managers involved with circular economy activities.
Three Circular Economy Challenges
We found those involved in the circular economy faced challenges in three areas:
Lack of information.
Generally, the circular economy involves an exchange: someone producing waste, and someone using it. Both parties need to be aware of the potential opportunity for material exchange. Often the opportunities for exchange are greatest across industries: for instance, bioenergy often uses organic feedstocks such as food waste. But communication across industries can be difficult; companies are often focused on their own industry and don’t see outside opportunities.
Lack of scale.
Small, distributed material streams are often not useful to businesses. Achieving sufficient scale of materials for circular business may require some type of intermediaries. These may be firms that collect and reprocess specific waste materials; they can aggregate small material streams in order to achieve a viable business.
Involvement of many actors.
Undertaking a circular economy project will likely require networking. Supply chain partners may help with material footprint information, public sector organizations may organize regional CE initiatives, and NGOs can offer expertise on sustainable resource use. Making these connections requires effort.
Addressing Challenges: Solution from Our Case Studies
Effectively managing the circular economy requires thinking at a systems level, so that the activities of different participants can become more interconnected. Those involved in a circular economy system need to collectively develop ways to facilitate exchange. We found three ways in which people working with the circular economy achieved this connection:
Adjust operations to consider other participants
Organizations involved need to alter their operations to work with others in the circular economy system. Adjustment might involve taking on new roles. For instance, in the Basque circular economy initiative, a non-profit focusing on textile and appliance waste recovery, shifted towards a more market-oriented role in order to develop new remanufactured products together with firms.
Adjustment also often involves becoming more open to sharing information on resources: e.g., material compositions and volumes. We saw this dynamic in all three of our cases. Participants shared information in resource workshops and material databases. On-going collaboration between participants can even lead to new marketplaces for unused resources. Intermediary organizations can also aid in organizing information sharing while retaining some degree of confidentiality.
Build formal coordination processes across organizations
Reaching shared goals requires new processes. Examples include participatory decision-making bodies and joint spaces for experimentation around CE opportunities. For instance, the Devens eco-industrial park in the USA has a “Great Exchange program” with workshops for sharing material information and visioning new CE opportunities: “Basically, we ask the companies to come to a meeting, bring samples of orphan byproducts or materials they've got, and start to find new trading partners,” explained a coordinator.
Joint coordination is also typically required for systematically collecting expert knowledge on CE practices. For instance, the Finnish Industrial Symbiosis Programme formed an expert network to bring in technical knowledge to facilitate CE projects.
Our research demonstrates the strength of tailored local coordination for the circular economy. While some management tools, such as information sharing mechanisms, also scale across larger geographical distances, we found that many of the examples for deep CE collaboration happened in local initiatives. Longer transport distances in material reuse may also reduce the sustainability benefits.
Be open to novel ways of partnering
As companies begin to think in systems terms, new shared arrangements can develop between participants. These can include new platforms for sharing resources and information. In eco-industrial parks, organizations co-locate so that they can reprocess waste streams together, while the public sector provides the necessary infrastructure. For instance, several firms and the municipality have collaborated to develop the Envi Grow Park in Finland; businesses process municipal waste, organic waste, and various streams of glass, metals, cardboard, electronics, and construction material. Such arrangements pool resources to provide collective benefits.
Ultimately, businesses may need to rethink competitive advantage. System-level collaboration is necessary for the circular economy. It is crucial to improve the collective capabilities of the entire resource system. This requires diverse and deep collaboration among participants, and may involve the sharing of resources, infrastructure or equipment that has traditionally been kept in-house.
Future Accelerators of the Circular Economy
In the future, we see system-level CE management becoming more common with the advent of new technologies such as intelligent goods (the Internet of Things), distributed ledgers (blockchain) and 3D printing. These can improve the potential for system-wide coordination as well as decentralized production from recycled materials.
This research has been awarded by Academy of Management All-Academy Best International Paper award and the ONE Unorthodox Paper award.
About the authors
Samuli Patala is Assistant Professor of Organization and Management in the Department of Management at Aalto University, Finland. His aim is to produce knowledge of how organizations can operate more sustainably. His expertise includes inter-organizational collaboration, circular economy governance, institutional change processes during sustainability transitions as well as sustainable business models. He has a particular interest in the transitions towards circular economy and renewable energy production. His research has appeared in some of the leading journals in the field and has been recognized with several awards, and he has been involved in multiple large-scale research projects involving collaboration between academic research and industrial partners. He previously worked as a visiting scholar at Harvard University’s Weatherhead Centre for International Affairs.
Minna Halme is Professor of Sustainability Management at Aalto University School of Business and Director of Aalto Sustainability Hub. Her research focuses on sustainability innovations, co-creation of sustainable business models and societal impacts of CSR. She has participated in several European research projects and heads a number of national ones. She teaches Sustainability Management at Aalto’s Master programmes, in executive MBA courses in Finland and South Korea and in the CEMS MIM program. Academy of Management has acknowledged her papers with All-Academy Best International Paper award, the ONE Unorthodox Paper award and three Best Paper awards. Her work has also been featured by the The Ecologist and The Newsweek.
Laura Albareda is Associate Professor of Sustainable Business at the School of Business and Management, LUT University in Finland. Her works aims to expand the analysis of collective action and polycentric governance in business field, working in collaboration with business, public agencies and NGOs in Spain and Finland. She also works on sustainability-oriented innovation, polycentric value creation and new forms of organizing research. Her research has been published in leading journals such as Journal of Business Ethics, Journal of Business Research, Business & Society or Technological Forecasting and Social Change. She has been visiting scholar at Amsterdam Business Schools, Ivey Business School, Boston University School of Business and Warwick University.