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Circular Business Models: Overcoming Barriers, Unleashing Potentials (Full Report)

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The Circular Economy (CE) represents a disruption of today’s linear ‘take-make-waste economic’ paradigm. It is not an end-of-pipe approach to tackling ‘waste’. Turning the dominant linear structures into value cycles requires a rethinking by all involved actors. It starts with circular product redesign and demands a consistent realignment of all subsequent business processes of value creation, delivery, and return. Overall objectives, mission of the working group The aim of this report was to develop a scientifically based practical manual for the successful implementation of business practices for advancing a Circular Economy. Taking a system perspective, the task of the related Circular Economy Initiative Deutschland (CEID) working group on ‘Circular Business Models’ (CBMs) was: a) to identify and describe actor-specific circular business models (CBMs) and their interactions in business ecosystems b) to provide an integrated presentation of existing barriers to CBMs c) to identify digital and regulatory enablers of CBMs d) to derive specific recommendations for action addressed to decision makers in the areas of politics, business and science in order to accelerate system transition towards a Circular Economy. Key findings and positions of the working group on Circular business models - Business models are a key lever for companies to embrace the Circular Economy. Ideally, a business model aligns circular value creation activities with opportunities to capture economic value. Greater adoption of CBMs in business practice by pioneers and followers is crucial to triggering the desired transformation process of industries and society towards a Circular Economy and generating a self-reinforcing momentum. - The isolated optimisation and profit-maximisation of individual actors’ business models no longer satisfies the demands of a Circular Economy. Effectively transforming existing value chains into value cycles requires a holistic view and the designing of circular ecosystems consisting of complementary value-generating actors. The CBMs of actors within the value cycle have to be aligned, with one of the actors taking the role of a centralised orchestrator, so that the combined value creation activities can indeed reach circularity at the system level. This requires all actors in the value cycle to not only share a vision of circularity, but also to distribute profits in a way that ensures the long-term commitment of contributing actors. Digital technologies will play a crucial role in moving towards and further reinforcing value cycles. - To reduce the complexity of CBMs and make them applicable in business practice, the working group proposes a typology of 22 CBM patterns covering both business-to-business and business-to-consumer markets. The patterns provide practitioners with a comprehensive overview regarding their respective focus, circular potential, and product design needs (see the ‘Business model patterns overview’ figure below). The patterns can be combined by a single actor to build a more comprehensive business model and interlinked across actors in the value cycle to build business model ecosystems.
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Real-world experiments are best suited for testing and validating novel circular business models (CBMs). Despite the increasing prominence of experimentation in CBM research, there is a lack of investigations on how firms manage and organize CBM experiments. This study aims to fill this research gap by examining the organizational capabilities needed to orchestrate CBM experiments, beyond prototyping, piloting, iterating, and scaling up. Drawing on a systematic within-and cross-case analysis with two fundamentally different firms that nevertheless share the same objective - the dynamic stabilization of a long-term viable CBM - we offer a new perspective on the management and organization of CBM experiments. The study shows how the investigated firms have developed three CBM experimentation capabilities over time, which can be disaggregated into (1) contextualizing, (2) dynamic co-structuring, and (3) governing intangible assets. Moreover, the findings provide further theoretical directions for CBM experiments and identify gaps for future research.
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