A search for compelling sustainability narratives, transformative business models and pathways towards a circular & regenerative economy — www.linkedin.com/in/renildebecque
Much of the supply chain is made up of SME’s (Small and Medium Enterprises) that contribute significantly to the national economy. According to the European Commission’s annual report (2013/2014) on European SME’s “some 21.6 million SME’s in the non-financial business sector employed 88.8 million people and generated €3,666 trillion in added value”, or, expressed in another way, “99 out of every 100 businesses are SME’s and they generate 58 cents in every euro of value added”. SME’s represent the backbone of national economies and their contribution to GDP expands as the middle class grows which is a widely recognised (global) trend. In the current arena of sustainability the major focus of attention rests with the large corporations as they are perceived to be the main contributors to negative environmental impact. Corporate CSR departments are skilled at reporting the company activities but are mainly concerned with mitigating risk and exposure. High scores on GRI or the Dow Jones Sustainability index provide the evidence that they are doing the right thing and validating the brand image. However, not many of these leviathans have embraced sustainability as part of their core business strategy, it remains an add-on. The Circular Economy provides a framework in which CSR principles and business strategy can unify to deliver competitive advantage, and this has been recognised by a number of leading giants such as Philips, Unilever and Walmart to name but a few. The request to their supply chains is a motivational factor for 2nd and 3rd tier suppliers (SME’s) to clean up their act but what are these suppliers doing to elevate their own competitive advantage, especially if there is no request from the top? Although competitive advantage resonates with SME’s they tend to view sustainability as a low priority and often cite that customers are unwilling to pay more for responsible products and services. However, if we consider the economic benefits of the Circular Economy, they are well positioned to migrate to new business models and secure long term relationships with their customers. So what is missing to enable SME’s to adopt circular business practices and allow for their economic growth? The customer is still king: The primary concern for SME’s is securing new customers as identified by the European Commission report. In this sense they are doing their utmost to please the customer and are not concerned with a bottom up approach for value creation using the Circular Economy. Access to finance: Circular Economy remains a relatively large investment item for SME’s and gains little traction when profit margins are low. External financing is difficult to secure because there is no direct request from the top tier customer and the return on investment is difficult to predict. Lack of a managed system: Asset recovery requires a managed system and this is beyond the scope of most SME’s. They are often suppliers to suppliers and don’t know where their products go. Setting up and managing an asset recovery system is (perceived as) too big a task for them. Expert knowledge: Even with the appearance of many Circular Economy platforms and NGO’s , efforts still tend to be fragmented. SME’s differ considerably from one another and there is no “one-size-fits-all” solution. The platforms tend to adopt a facilitation role but lack the in depth business knowledge to operationalise the Circular Economy concept. So, if we are to harness the economic power of the SME’s and make real progress in transitioning to a Circular Economy, it would seem that the answer lies with collaboration. A post Rio+20 survey by GlobeScan/Sustainablity (2012) reports that sustainability experts overwhelmingly viewed collaboration as “one of the few models that could catalyse solutions to the sustainable development challenges that we face at the speed and scale that we need”. Furthermore, “collaboration spreads risk and allows access to expertise and diverse perspectives unavailable within a single organisation”. An example of collaborative performance is Keiretsu. This is a Japanese word for “group” and is understood as a business network of manufacturers, supply chain partners, distributors and financiers who remain financially independent but work closely together to ensure each other’s success. The formation of a Keiretsu allows a manufacturer to establish stable, long-term partnerships, which in turn helps them to stay lean and focus on core business requirements. The SME’s in the Keiretsu have a vested interest in keeping the primary manufacturer economically healthy to stimulate and grow their own business. This model could be adapted to a Circular Economy approach providing bottom up innovation and shared risks on asset recovery. Managed asset recovery systems could be established for Keiretsu partners and primary manufacturers, enabling a source of recurring revenue. Imagine the adoption this kind of collaborative performance model throughout the SME business world and suddenly the individual corporate Circular Economy programs look a little less impactful.