Closing the Loop - Circular Economy for Industrial Companies

By Tim Ballenberger, ROI-EFESO

Floods, fires, severe weather – extreme weather events are not only becoming more frequent, but also increasingly drastically. These disasters clearly show us that now is the time to act. To tackle the climate crisis, we need to find the right solutions to sustainably reduce our greenhouse gas emissions.

The increase in climate-damaging emissions is just one of the shadows of economic growth. In recent decades in particular, we have become increasingly aware of the extent of our impact on the planet and the damage this is causing. However, a short-term end to economic growth, as a possible way out, is not realistic: in the future, the increase in global population and the further decline in poverty will continue to provide additional growth.

But how can we enable this growth without damaging our planet to the same extent? One possible answer to this is the circular economy. The aim is to achieve more with the same amount of raw materials and to make used raw materials usable again so that they are not lost. In concrete terms, this means that existing products remain in use longer and we enable effective recycling. This closes resource cycles and slows down the global demand for resources. This is the only way to decouple our negative impact on the planet from economic growth.

However, this approach does not fit in with the so-called throwaway society, in which consumption is dominated by the "take - make - use - lose" principle. Thus, the circular economy also requires a transformation of our economic system – a complex task that necessitates the cooperation of all parties involved. One of these players is industry, whose business models are often anything but circular. But how can an industrial company successfully enter the circular economy?

It all starts with product design

The product design process defines the circularity of a product. It is therefore determined at the very beginning of the product life cycle how well a product is suited for the circular economy. Various questions are relevant here: can the organic raw materials used be easily separated from technical components? Are toxic materials used? Can individual components be easily replaced and repaired? Such design decisions are difficult or impossible to change for existing products.

These issues are not new to the product development process: hazardous materials or recyclability are already on the agendas of industrial companies. Nevertheless, it is evident that current design paradigms lead to products that are only recyclable to a limited extent. The car is a good example of this: tire abrasion, for example, generates harmful microparticles, and at the end of a vehicle's useful life, virtually no components are reused in new vehicles. True circular economy looks different.

Circular products therefore need specific design paradigms. Examples of this are modular design, design for disassembly, or paradigms that aim at optimized use by the customer and thus promote circular user behavior in the first place ("design for circular behavior").

Long-term success through new business models

However, not only individual products, but also a large part of the business models of industrial companies are not yet geared to the circular economy, but follow the linear "take - make - use - lose" scheme. The challenge therefore lies in developing business models that are both profitable and circular in structure. One approach to this is that customers no longer pay for the product itself, but for its use. Car-sharing systems – a well-known example – already discourage many people from buying their own vehicle. By reducing the number of vehicles sold, the emissions from their manufacture fall, and the carsharing provider in turn benefits through the continued use of the carsharing fleet.

The question of the business model requires entrepreneurs to have the courage to ask uncomfortable questions. Concerns are very understandable here, as a concept with which a company has been very successful for a long time is being questioned. However, establishing circular business models at an early stage opens up a number of opportunities for industrial companies to expand their own competitiveness:

• Reducing dependencies on primary raw materials
• Proactively responding to the regulatory consequences of worsening climate change
• Shaping the value network with strong and innovative partners
• Establishment of adapted, efficient processes
• Creation of positive impulses for the corporate image

The topic can be introduced step by step, for example by gaining initial experience with autonomous teams. These teams take a product from the idea stage to market launch without being held back by established structures. The experience gained in this way can ultimately be fed back into updating the corporate strategy in order to anchor the topic centrally at a strategic level.

No success without partners

The circular economy enables many new business models that previously seemed less appealing. Examples include the repair and maintenance of machines, software upgrades for the implementation of new functionalities, and also the topic of return logistics for used products. This means that it is no longer just the manufacturer who is responsible for the central value added to the product; instead, the value added is distributed more evenly across the parties in the value network.

Against this background, it becomes clear why a company should not tackle the topic of circular economy on its own: the success of a product requires a network of competent and reliable partners, each of whom takes on different activities that are necessary for the circular economy. Intensified and trusting cooperation with one's own value network will therefore become even more important for companies than it already is today.

The transformation to a circular economy is a complex and challenging task for our society. At the same time, it is indispensable if further economic growth is to be made possible without exacerbating the climate crisis at the same time. Companies therefore cannot avoid the issue. Instead, those companies that address the issue early on will gain a competitive advantage. Circular economy is thus a prime example of the topic of sustainability itself: good for society, good for the environment and also good for business success.

First publication of this article in: Lünendonk Magazin, Ausgabe 10/2023, „ESG: Schlüssel für nachhaltigen Unternehmenserfolg“