A growing trend in the world of business is the move away from traditional business models into circular business models.
What are Circular Business Models (CBMs)?
Circular Business Models (CBMs) focus on multiple-use resources and products which are reused and remain in the economy for as long as possible.
Circular Business Models (CBMs) are decision-making tools that focus on the environmental impacts of business activities through circularity – reducing, reusing, repairing and recycling raw materials, products and waste.
Because these models do consider long-term environmental impacts of business activities, they emphasize sustainability matters related to all aspects of a firm’s operations.
They focus on fundamentally different ways of producing and consuming goods and services transitioning towards a more resources efficient, sustainable and circular economy. For instance, the widespread adoption of renewable energy such as wind and sun, reusing products to keep them in the economy for as long as possible, using environmentally friendly green technologies
By using fewer non-renewable resources, businesses can also cut their costs of production in the long term. Adopting circular business models helps to reduce the environmental footprint of production and consumption on the natural environment and ecosystems that societies rely upon.
Example 1: Coffee cups which are made out of a biodegradable component cornstarch used, reused and eventually composted into the soil supplying nutrients to various plants.
Example 2: Buildings such as homes and offices which are being made using non-toxic technical components are designed and created in an environmentally friendly way.
Example 3: Renting clothes rather than buying them, creating spaces for selling or donating second-hand clothes for resale, as well as recycling and reusing textile materials can ensuring the longevity and durability of clothing items.
Circular Business Models (CBMs) rely on cradle to cradle design and manufacturing.
What is cradle to cradle design and manufacturing?
Cradle to cradle refers to a sustainable model of production based on multi-use of resources, thus benefiting the environment. Production generates no waste as it uses natural processes making it sustainable for future generations.
Cradle to cradle is a circular approach to product lifecycle management that focuses on continually cycling back raw materials and resources used in all aspects of business operations. Hence, leading to greater efficiency, less waste, a reduction in energy usage, lower resource consumption as well as resource depletion and supply shortages.
It does consider the environmental impacts of the product’s extraction, production and disposal.
The circular approach to product lifecycle management is a continual process that involves the following activities:
- Reducing. Reducing the amount of raw materials used to make products minimizes the environmental impact of disposal.
- Reusing. Reusing means using a product or raw materials more than once without making it into a new product. Reusing resources also prevents waste.
- Repairing. Repeatedly using the same components or products after fixing them when broken rather than disposing of them and replacing with new ones.
- Recycling. Recycling enables old raw materials to be reprocessed into new products with the aim of eliminating waste.
Advantages of Circular Business Models (CBMs)
Advantages of using Circular Business Models (CBM) include:
- Offering new commercial opportunities for businesses leading to new revenue streams, hence to sustainable business growth. This will help to gain a competitive advantage over rival businesses that do not adopt circularity.
- Protecting the natural environment and ecosystems that we all rely on by becoming environmentally friendly and safeguarding the economy against resource depletion, supply shortage and the rising cost of raw materials.
- Improved corporate image and relationship with key stakeholder groups such as employees, customers, investors, environmental pressure groups and the local community. Attracting investors who seek to support businesses that act in a socially responsible way towards the natural ecosystems.
- Can also help to attract and retain skilled and loyal employees because an increasing number of people are more concerned about the environmental aspects of the organization that they work in.
Disadvantages of Circular Business Models (CBMs)
Disadvantages of using Circular Business Models (CBM) include:
- Can be expensive. Higher costs mean that businesses would need to attract customers who are willing to pay more for greener and environmentally friendlier products.
- Requires businesses to give up some of the economies of scale gained from large-scale operations and to reduce the degree of specialization and sophistication of their products.
- Can be challenging to authentically adapt a circular business model without government intervention through subsidies to deal with mispricing of natural resources which are often underpriced and therefore overproduced. Trade policies often restrict cross-border flows of products thereby limiting the sufficient government support.
Adopting Circular Business Models (CBMs) can ultimately give a business organization many competitive advantages and facilitate their business operations in a socially responsible and sustainable manner benefiting not only individual shareholders but also the society. However, such practices can restrict the ability of businesses to operate in the most cost-effective way.
