Renilde Becqué

A search for compelling sustainability narratives, transformative business models and pathways towards a circular & regenerative economy — www.linkedin.com/in/renildebecque

MBA ass. ‘Circular Economy building blocks & system shifts’

MBA assessment as submitted for Bradford University’s “Innovation, Enterprise and Circular Economy” MBA. Triple Crown accredited business school. Paper marked as ‘Outstanding’.

On complex systems and linear system stress

The concept of a Circular Economy is increasingly seen as an alternative to the current and predominantly linear ‘take – make – waste’ system of economic goods production and consumption; one that entails fundamental system change rather than mere incremental alterations.

One may wonder why such change is considered necessary considering the linear system has served us for so long. Part of the answer lies in the signs of rising stress and loss of resilience of the dominant paradigm, a phenomenon fittingly described by Gunderson and Holling (2001) in Panarchy Theory and summarized by Homer-Dixon (2011).

Panarchy Theory hereby represents the evolution of complex adaptive systems, i.e. adjusting or adapting to the external environment as it changes. An example is mankind’s tightly intertwined global economy and its critical links to natural systems in order to provide it with the resources it needs to sustain itself (Homer-Dixon, 2011).

This very economic system created by human society is now under threat as it increasingly moves further away from a balanced state. In particular as a result of requiring humongous amounts of energy and other (converted) resources to maintain, while harvesting precious few of its spent resources after first use.

ABC

Figure 1 Panarchy model of adaptive cycles (Davoudi, 2012)

Homer-Dixon (2011) in this regard describes three common phenomena that will reduce a system’s resilience, increasing its vulnerability to collapse or malfunctioning. First of all is a gradual but steady loss of capacity to exploit the potential for novelty. In current society for example we see a strong focus on compliance, prescribing solutions rather than required performance therewith limiting the opportunity for innovation.

A second cause relates to the balance between efficiency and resilience (EMF, 2012). As efficiency increases, the redundancy of critical components declines. Increased concentration as an example of various forms of power with a limited group of large corporate players through ‘economies of scale’ pushes smaller firms out of the market or swallows them. This in turn can result in loss of diversity and innovation potential, replaced by increased vulnerability if one of the major players runs into trouble. Thirdly, strong interlinkages and dependencies in a situation as just described could rapidly result in a cascade of failure (Homer-Dixon, 2011).

EDF

Figure 2 Dynamics between Resilience and Efficiency (EMF, 2014)

Taking inspiration from “Nature’s Principles (Dargent, 2011), it is therefore vital to move our global economic system from linear supply chains towards an eco-system of distributed supply networks. The resulting mixture of variety and redundancy, also known as ‘flexible specialisation’ -a term coined by Piore and Sabel (1984)- enables society to explore solutions as broad as the changes in the environment in which it operates (Moore, 2005).

After all, rather than tying our fates to particular technologies, our largest potential may be with systems and the behaviours we display in order to create the right enabling conditions. The role of technology is ultimately, as Haugland (2014) argues, not the goal but merely a means to an end.

Model transformation

Moving from theoretical underpinning to practice, advocates for a fundamental change of our prevailing economic model have in recent years become increasingly outspoken. Terms such as Circular Economy, Regenerative Capitalism, Responsible Economy, and Restorative Economy increasingly abound. Taking a whole systems view, the focus of these approaches is on optimizing entire (eco)systems, not just individual components.

At a business level several pioneers have trialled and tested these concepts for at least several decades. This includes the late Ray Anderson, chairman of carpet tile company Interface, who became a passionate advocate in the mid90s for ‘climbing Mount Sustainability’. Beyond merely eliminating environmental impacts he gave his team the task to convert Interface into a Restorative Enterprise, “first to reach sustainability, then to become restorative, putting back more than it takes and doing good to Earth, not just no harm – by helping or influencing others to reach toward sustainability” (Anderson, 1999).

Another philosophy known as Cradle to Cradle found a broad audience in countries such as the Netherlands from 2006 onwards. Through a collaborative approach, private and public entities felt compelled to experiment with the concepts of ‘re-making the way we make things’ and ‘waste = food’. Product chains and even entire companies or cities are framed as ‘metabolisms’ with technical and biological loops, therewith linking natural eco-systems to man-made cycles (Braungart and McDonough, 2002).

Borrowing heavily from earlier concepts around e.g. industrial ecology and bio-mimicry, these predecessors often failed to appeal to a broad and diverse range of stakeholders. More recent philosophies have been relatively successful to date in spurring a flurry of innovative thinking through their compelling approach, challenging people to apply their imagination, specific skills and knowledge to re-think and re-imagine the way things are being done. One that, as discussed in the piece “Frames and Brains” (2006), effectively manages to link novel approaches to that ‘what makes sense’ defined by deep frames in our brains.

Indicative framework for a circular economy

Although such concepts are still evolving through an iterative process of trial and error, they provide sufficient clues for outlining an indicative framework for a circular model. A model based on continuous resource flows, dynamic feedback loops and an ability to restore, renew or revitalize sources of energy and materials. This creates systems that provide for the needs of society while maintaining the integrity of the natural environment in which they operate.

Key attributes, representing a step change away from prevailing linear thinking, comprise the following:

  • Towards an ecosystem approach for precious resources, aiming for continuous and causal loops – interrelated loops of materials and nutrients, but also loops of responsibility;
  • Eliminating all forms of waste, i.e. any cost in a production process which doesn’t produce value – from physical waste (waste = food) to wasting time, resources and energy;
  • Aiming for benign product ingredients and emissions, eliminating the use of toxic or harmful substances in the production and supply chain (input), as well as such emissions or discharges to natural systems (output) including the release of greenhouse gases;
  • Harnessing of renewable energy sources, creating energy loops rather than dead-ends;
  • Where possible, moving information rather than molecules (products or people);
  • Re-defining/-designing commerce by selling a service and its performance or values rather than the physical product – product ownership therewith remains with the supplying party.

As per Lovins et all (1999, p. 146) this entails a new perception of value where acquisition of goods is seen as a measure of affluence to one “where well-being is measured by the continuous satisfaction of changing expectations for quality, utility and performance”. It may also better align interests of both buyer and seller parties, providing a customised and upgradeable solution to the customer while potentially improving the company’s bottom line, therewith offering ‘rewards’ for doing more and better with less (Lovins et all, 1999, p. 154).

  • In line with this is a focus on fulfilment, i.e. fulfilment of a customer’s needs and aspirations, rather than a focus on individual consumption;
  • A distinction between biological nutrients, which can be used in cascades to gain as much value as possible from them before returning to the natural environment to nourish other organisms, and technical nutrients, i.e. inorganic or synthetic, which after first use can be maintained, reused, remanufactured or recycled within a perpetual cycle.

The concept of distinct biological and technical resource ‘metabolisms’ following their own cycles within a circular economy is particularly prominent in the Cradle to Cradle framework as promulgated by McDonough and Braungart (2002), reasoning that maintaining healthy continuous material flows requires differentiated treatment of organic and inorganic resources.

  • Following on from this is striving for upcycling instead of down-(re)cycling, in particular for technical nutrients, re-emphasizing and retaining the quality of resources;
  • Designing with consideration of a product’s economical and useful life – as influenced by e.g. fashion, politics and innovation. This could mean a core which has been designed to last (e.g. phone blocks), with a cover designed for replacement if the customer desires a different look or functionality;
  • A focus on minimizing entropy and preserving exergy, for example by assessing energetic performance differences between alternative uses of (constituent) resources or alternative pathways, as well as through designing for reuse and disassembly.

This can be explained by referring to the second law of thermodynamics. Spontaneous processes tend to occur in the direction of decreasing energy quality (exergy) and increasing disorder (entropy). In current production processes, the quality of a set of materials used in the production of products is often compromised by entropy, meaning that it will require extra energy to retain their quality for future use.

  • Building resilience through diversity – in ecosystems this is based on biodiversity, while for business systems it’s based on the diversity of connections, customer relations, supplier relations, resources and innovations. After all, as per “Nature’s Principles” (Dargent, 2011) building resilience is more effective than correcting poor risk‐based decisions made with partial information.
  • Building shared values – in ecosystems also known as ‘symbiosis’, in a circular economy it’s about creating shared values with suppliers, sellers, customers and clients through performance and cooperative entrepreneurship (C2C Bizz, 2013). Business theory is therewith slowly moving away from mere price-based transactions – decommoditization – to developing partnerships, such as advocated by the Japanese in which “supplier relationships should be long-term and cooperative” (Hayes and Pisano, 1994). Companies become therewith an integral part of Co-Evolution, rather than to risk being phased out (Dargent, 2011).

On value creation and building blocks 

EMF (2012) identifies various core sources of value creation in a circular economy, the economics and comparative attractiveness of which can differ significantly depending on the product or service, location and set-up.

EFG

In order to better capture these value creation opportunities and ensure a sufficient level of quality, companies are likely to aim for increased collaboration across their supply chain or ‘network’, and/or move towards greater vertical integration. Either forward towards the user and specific sales model deployed, or backward to enable more control over supply activities for the procurement of materials and parts (C2C Bizz 2013).

Nonetheless, in either case specific skills and enablers are essential to allow for such a circular model to take off. This includes the skills to rethink and alter prevailing design and production processes, as well as to facilitate materials being retained for onward value creation after a product has been made available to the consumer.

On a macro level, it also involves the creation of a favourable economic and societal ‘climate’. Regulations and incentives as put forward by governments, access to financing for concepts characterised by a different risk profile than the status-quo, and general awareness and understanding in society of the new value propositions and their benefits can accelerate or obstruct the move to a more holistic paradigm (EMF, 2012).

Few companies as such will aim or be able to change their entire business model towards circular overnight. In practice we see companies mainly embracing the following two different approaches (C2C Bizz, 2013):

  1. A hybrid solution, which utilizes the advantages of both, or rather focuses on diminishing the disadvantages of either system. Hybrid solutions are a key component of transitions: using beneficial elements of the existing system to compensate for the first failures of the new system in order to maintain reliability. An example are ‘partially open geographical loops’ with a supply chain which is partially linear, followed by regional or local closed loops for maintenance, harvesting and refurbishment of components (EMF, 2014).
  2. Companies starting a new transformational business or business line separate from the existing one, enabling them to fully develop and dedicate the resources needed for success. This allows innovations in technical specifications and service delivery to be introduced swiftly without interference to existing operations.

The latter illustrates that when solving linear problems, we may find ourselves having to solve other pieces of the complex puzzle as well, as part of the circular ‘game of change’.

 

References:

Anderson, R. (1999). Mid-Course Correction: Toward a Sustainable Enterprise: The Interface Model. Atlanta: Peregrinzilla Press

Becqué, R. (2014). Emergence of the Circular and Restorative Business Model. Available at http://www.environmentalleader.com/2014/02/06/emergence-of-the-circular-and-restorative-business-model/ [Accessed 08/08/2014].

Braungart, M. and McDonough, W. (2002). Cradle to Cradle: Remaking the Way We Make Things. New York: Farrar, Straus and Giroux

George Lakoff and the Rockridge Institute (2006). ‘Frames and Brains’. Chapter 3 of Thinking Points: Communicating Our American Values and Vision. New York: Farrar, Straus and Giroux.

C2C Bizz (2013). Guided choices towards a circular business model. Available at http://www.c2cbizz.com/filemanager/getfile.php?f=1690&hash=1c5a72b992ec541e7bdd449f0a67a5833526eb88 [Accessed 12/12/2013].

Dargent, E. (2011). Biomimicry for Business? A business literature and critical review of nature’s principles applied to business practice, as suggested by Biomimicry for Creative Innovation. University of Exeter Business School. Available at http://businessinspiredbynature.com/resources/how/ [Accessed 08/08/2014].

Davoudi, S. (2012). ‘Resilience: A Bridging Concept or a Dead End?’ in Planning Theory & Practice, Vol. 13, No. 2, pp. 299–333, June 2012. Available at http://www.tandfonline.com/doi/pdf/10.1080/14649357.2012.677124 [Accessed 22/08/2014].

EMF: Ellen Macarthur Foundation (2012). Towards the Circular Economy: Economic and business rationale for an accelerated transition. Available at http://www.ellenmacarthurfoundation.org/business/reports/ce2012 [Accessed 03/08/2014]

Haugland, B. (2014). ‘From Technology to Transformation’, DNV GL web blog. 07 August 2014. Available at http://blogs.dnvgl.com/sustainability/2014/08/technology-transformation/ [Accessed 09/08/2014].

Hawken, P. and Lovins, A. (1999). Natural Capitalism: Creating the Next Industrial Revolution. New York: Little Brown, & Company

Hayes, R. H and Pisano, G. P (1994), ‘Beyond world class: the new manufacturing strategy’, Harvard Business Review, Vol. 72, No. 10, pp. 77-86, 1 January 1994. Available at http://hbr.org/product/beyond-world-class-the-new-manufacturing-strategy/an/94104-PDF-ENG [Accessed 03/08/2014]

Homer-Dixon, T. (2011). ‘Complexity Science’. Oxford Leadership Journal. Vol. 2, Issue 1, pp. 1-15, January 2011. Available at

http://www.oxfordleadership.com/journal/vol2_issue1/homerdixon.pdf [Accessed 23/07/2014].

Moore, J. (2006). ‘Business ecosystems and the view from the firm’. The Antitrust Bulletin Spring 2006. Vol. 51, No. 1, pp. 31-75. Available at http://www.antitrustinstitute.org/files/Business%20ecosystems%20and%20the%20view%20from%20the%20firm,%20antitrust%20bu_081320081450.pdf [Accessed 15/08/2014].

Lance, G. and Holling, C. (2001). Panarchy: Understanding Transformations in Systems of Humans and Nature, Washington DC: Island Pres
 

 

Appendix I – Afterword on behavioural challenges of System Change

The need for a compelling narrative

There is increasing acknowledgement amongst a broad group of stakeholders that a target of sustainable development is unlikely to be reached through a path of incremental change. Instead it will require a profound and transformational shift beyond the economic and societal (linear) systems which currently govern us. In essence, moving from a business focus on ‘doing well by doing good’ to an integrated and inclusive eco-systems approach that has planetary and social boundaries at its core.

Essential to scouting the directions for this ‘roadmap’ is a compelling narrative, which articulates the ‘how and why now’ of a plausible paradigm shift, respecting (an altered definition of) prosperity within earth’s absolute and relative carrying capacities. One that creates convincing, prosperous and feasible images of what such a future could look like. And importantly, one that installs a sense of confidence in stakeholders – each of which nurtures a different set of values, (perceived) benefits and sense of urgency – to set them off on a path to radically re-think our future.

Until then few will feel safe or spurred diverting from the current course, which –if comparing our linear system metaphorically to a bus hurling in the wrong direction- could probably result in slowing the bus down but would still be at great risk of failing to have it make a gradual U-turn.

Nonetheless, the barriers to attaining a different, more regenerative state are numerous and often systemic. Furthermore, such a shift would include a redefinition of how we measure wealth, progress and economic growth; one that focuses more on fulfilment of people’s needs and aspirations than on consumption.

The mind-set gap to transition beyond Incremental Change

Continuing with behavioural aspects, we can witness a clear “mind-set gap”, as aptly described by Thurm and De Ruiter (2014) in a recent article. They refer therewith to the link or the lack thereof between the “macro”, representing system-level thresholds – for example IPPC recommended carbon limits to avoid dangerous climate change- and the “micro”, the adverse or beneficial impact created at the individual or company level.

Business strategy and sustainable development thresholds, as exhibited through a plethora of concerning mega-trends[1], are all too often still fairly disconnected issues to many decision makers. A key reason may be the need to make such thresholds –also known as environmental and social “planetary boundaries”, per Rockstrom et all (2009), and Raworth (2012) – meaningful, visible and specific to individual stakeholders. This does not only pose challenges as to how to go about this, but also raises a suite of questions around fairness and equity as well as who’s holding the moral high ground.

Instead, many of the current strategies addressing the inefficiencies and emissions of the linear system focus on effects, not the root causes. This leads to a risk-based tendency to mainly try and reduce harm, rather than to strive for enhancing and enabling a regenerative state (Thurm and De Ruiter, 2014) such as envisioned by the Circular Economy concept.

 

References:

Raworth, K. (2012). A Safe and Just Space for Humanity: Can we live within the doughnut?. Available at http://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/dp-a-safe-and-just-space-for-humanity-130212-en_5.pdf {Accessed 15/08/2014].

Rockstrom, J. et all (2009). A safe operating space for humanity. Nature. Vol. 461, pp. 472-475, 23 September 2009. Available at http://www.nature.com/news/specials/planetaryboundaries/index.html [Accessed 15/08/2014].

Thurm, R. and De Ruiter, N. (2014). ‘The Mindset Gap in Addressing Sustainability Context’. 31 July 2014. Available at http://www.sustainablebrands.com/news_and_views/new_metrics/ralph_thurm/mindset_gap_addressing_sustainability_context [Accessed 05/08/2014].

 

[1] Megatrend: a collection of trends or patterns of economic, social and/or environmental activity that can affect large numbers of people and how they live and consume.

 

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