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Circular Business Models – mapping experimentation in multinational firms
Nancy M.P. Bocken
Maastricht Sustainability Institute, School of Business and Economics, Maastricht University, Tapijn 11 Build-
ing D, P.O. Box 616, 6200 MD Maastricht, The Netherlands
Citation for this book chapter:
Bocken, N. (2021) Circular Business Models – mapping experimentation in multinational firms. In: Kopnina, H.,
Poldner, K.A., (Eds)." Circular Economy: Challenges and opportunities for ethical and sustainable business”,
Routledge.
Link to the full book: https://www.routledge.com/Circular-Economy-Challenges-and-Opportunities-for-Ethical-
and-Sustainable/Kopnina-Poldner/p/book/9780367418649
1. INTRODUCTION
The circular economy has become a prominent concept to drive sustainability transitions in business.
In the circular economy, resource loops are narrowed, closed, and slowed to deliver on the increasing
demands of a growing world population (Bocken et al., 2016). While ambitious and inspirational as a
concept, there is still significant uncertainty associated with the implementation of the circular econ-
omy (Blomsma & Brennan, 2017; Zink & Geyer, 2017). Business models need to be designed to
achieve the desired impact and avoid negative rebound effects (e.g. Tukker, 2015; Bocken et al.,
2018a). Experimentation is needed to understand which business models work in practice, what the
impacts are on the environment and society, and how to initiate transformations within business (Anti-
kainen et al., 2018; Bocken et al., 2018b). In particular, the most service-oriented business models are
expected to deliver the greatest environmental impacts in the product-service spectrum of business
models (Tukker, 2004). Hence, the focus here is on service-oriented business models.
The following research question is investigated: What are the circular business model experimentation
practices in large established companies? First, the types of innovation in a circular economy are in-
troduced, followed by the concept and scope of experimentation and focus on circular business mod-
els. Finally, through case analysis, companies’ experimentation practices with circular business mod-
els are described. Implications for future research and practice are presented and, in this way, the study
aims to contribute to how business can transition to a circular economy.
2. BACKGROUND
2.1 Innovation in the circular economy
The circular economy requires innovations at the process, value chain, product, business model and
ecosystem level (Brown et al., 2019).
At the process level, new technologies will need to support continuous efficiencies in manufacturing
processes, to reduce waste, water, energy, and emissions. This involves strategies such as designing
out waste, the use of renewable energy, and process design for multiple life cycles where materials and
components are continuously reused (Lieder et al., 2017). Process innovation is thus closely coupled
with product, business model and value chain innovations.
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At the value chain level, reverse logistics would support the take back and reprocessing (remanufac-
turing, repair, refurbishment) of products and materials (Kalmykova et al., 2018). This may be done
by the company itself, facilitated by its business model (e.g. in a carsharing service, the company per-
forms maintenance and repair) or by external companies who execute the logistics and repair services
on the company’s behalf.
Circular product design involves design strategies to slow, close and narrow resource loops (Bocken et
al., 2016), and design for a biological and technical cycle (McDonough & Braungart, 2002; Mestre &
Cooper, 2017). Product design strategies to slow loops include designing long-life products and ex-
tending product life in line with the higher strategies in the waste hierarchy (refuse, reuse) (Stahel,
1994). Closing the loop to recycle and recover materials, can be facilitated through design for a tech-
nological cycle; design for a biological cycle, and design for dis- and reassembly (McDonough &
Braungart, 2002). Narrowing loops is about minimising material and energy use per product.
A product needs to be coupled with a suitable business model to be successful. Circular business
model innovation is about innovating the value proposition, value creation and delivery and value cap-
ture mechanisms to leverage the economic value retained in products after initial use to create new of-
ferings (Linder & Williander, 2017). Products are kept at their highest value through strategies such as
direct reuse, repair and maintenance, before being remanufactured, refurbished and recycled (Achter-
berg et al., 2016). Business model innovation may lead to higher levels of circularity, when designed
as such (e.g. Tukker, 2015). Circular and sustainable business models have the potential to take a
broad perspective on a firm’s value creation by internalizing a wide range of stakeholder interests, in-
cluding those of the society and the natural environment (Stubbs & Cocklin, 2008).
Because a business model perspective typically focuses on how a firm does business (Magretta, 2002),
a business ecosystem perspective is proposed to be fruitful for the transition to a circular economy, be-
cause it looks at a multitude of business models together to achieve a collective outcome (Konietzko et
al., 2020a). Indeed, it has been proposed that in order to understand the full sustainability impacts, it is
important to understand how businesses co-evolve in an ecosystem (e.g. a city or region) (Boons &
Bocken, 2018; Schaltegger et al., 2016). Ecosystem innovation is about changing how actors collabo-
rate and relate to each other in contributing to a collective outcome (Jacobides et al., 2018; Talmar et
al., 2018). In the circular economy, ecosystem innovation is characterised by principles of collabora-
tion, experimentation and platform-building (Konietzko et al., 2020b).
2.2 Business experimentation
Business experimentation has gained foothold in the start-up and incumbent business sphere and aca-
demic literature (Chesbrough, 2010; Felin et al., 2020) and, recently, the sustainability sphere (Bocken
& Snihur, 2020; Weissbrod & Bocken, 2017). Yet, experimentation has long been a method and con-
cept in the natural and physical sciences (Weissbrod, 2019). However, the processes and methods for
experimentation in a business context still need significant development (Bocken & Snihur, 2020; Fe-
lin et al., 2020).
Experimentation has been described as a process to learn about future business models (McGrath,
2010) and co-create them in practice. Thomke (2003) refers to the important principles of experimen-
tation, such as ‘fidelity’, also described as the extent to which experimental conditions are representa-
tive of the larger market (Chesbrough, 2010). Testing business models with real customers paying real
money provides the highest fidelity (Chesbrough, 2010). Other parameters include the cost of conduct-
ing the experiment, the time required to obtain feedback and the amount of information learned from it
(Chesbrough, 2010).
Next, two approaches to experimentation in business are explained: Lean Startup (Ries, 2011) and ef-
fectuation (Saravathy, 2009). These approaches have been described by Chesbrough (2010) in the
business model innovation context and by Bocken and Antikainen (2018) in the circular business
model context.
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The Lean Startup (Ries, 2011) is a possible approach to experimentation which gained popularity in
business practice (Felin et al., 2020). The Lean Startup brought the term ‘pivoting’ - a change of direc-
tion as a result of learning from business experiments - into business practice. It involves validated
quantitative and qualitative learning starting with a hypothesis about the future process (Ries, 2011).
The aim is to build a minimal viable product (MVP), which is a simple representation or prototype of
the future product or business model. This MVP is put to the test, impacts are measured, lessons
learned, and next steps are planned (e.g. further testing with the same model, or pivot and change di-
rection).
The second approach is effectuation, developed by Sarasvathy (2001). It is about using available re-
sources, knowledge and means within an iterative innovation process based on experiments and stake-
holder interactions (Baldassarre et al., 2020). It has five key principles: the bird-in-hand principle (use
what is available); affordable loss (deciding on acceptable losses); crazy-quilt principle (stakeholders
shaping the enterprise); lemonade principle (exploiting opportunities in challenging circumstances)
and the pilot-in-the-plane (human agency as the driver of opportunity) (Sarasvathy, 2009). Effectua-
tion thus uses the means at hand. It has been recognized that there is a strong bias towards action over
analysis in effectuation, because without action, no new data can be analysed about the future business
model (Chesbrough, 2010).
While these are different approaches, effectuation and Lean Start-up seem quite compatible. A cloth-
ing industry case showed that despite the adoption of Lean Startup, an effectual approach was taken,
building on emerging opportunities and engaging with key stakeholders (Bocken et al., 2017). Experi-
mentation, regardless of the method, is very much needed to support the development of innovative
solutions (Bocken & Snihur, 2019). Business is bringing in other disciplines such as design and itera-
tive approaches of ‘talking, thinking and testing’ (Baldassarre et al., 2017) into innovation processes
(Beckman & Barry, 2007), also for the circular economy (Guldmann et al., 2019). However, more in-
sight is needed to understand the most appropriate practices.
2.3 Research gap
First, it has become apparent that different types of circular business innovation are needed for the
transition to a circular economy (Brown et al., 2019; Konietzko et al., 2020a). While innovation at all
levels is needed, new business models have been commended for their potential for positive ‘systemic
impact’ on society and environment (Stubbs & Cocklin, 2008). This is the case if the business model
is designed with the right parameters, such as a cleaner technology (Tukker, 2004; 2015), or set up to
drive sustainable consumption (Tunn et al., 2019).
Second, while the importance of experimentation to innovate companies’ business models has been
discussed for some time in academic literature (e.g. Chesbrough, 2010; McGrath, 2010) it is seen as
more challenging than innovating a product, because more fundamental aspects of the business such as
sales channels would need to change at once (Chesbrough, 2010). However, many approaches in in-
cumbents either build on existing templates like the business model canvas or approaches initially de-
veloped for start-ups such as the Lean Start-up (Bocken & Snihur, 2020; Felin et al., 2020). More in-
sight is needed to understand experimentation with business models in a large business context, and
for circular economy transitions specifically.
3. METHOD
This study employs a case analysis of practices by two global partners of the Ellen MacArthur Foun-
dation (EMF) which aims to accelerate the transition to the circular economy: H&M and Philips. To
allow for sufficient data access, both companies have at least 5 years’ experience as a partner of the
EMF and have set the circular economy as a key target. Both companies rolled out service-oriented
4
business models in practice and reported on those publicly. Data collection consisted of gathering lon-
gitudinal data about the companies’ circular economy activities with a focus on mapping the trajecto-
ries towards circular business model innovations. First, the corporate (sustainability) reports of at least
the past 5 years, tracing back to the time of first public commitment to circular economy, were ana-
lysed. Second, these data were triangulated with semi-structured interviews to better understand the
practices. The cases, interview sample, and data analysis procedure are described next.
H&M Group: fashion
H&M Group (H&M in short) is a leading global fashion company founded in Sweden in 1947. It in-
cludes the brands COS, Monki, Weekday, & Other Stories, H&M Home, ARKET and Afound. The
H&M Group (H&M here after) has over 4,900 physical stores in 73 countries and employs approxi-
mately 179,000 people (H&M, 2020c).
H&M has set out its vision to become 100% circular and promotes a circular approach in how prod-
ucts are made and used. The company works towards a clean, closed and effective circular life cycle
for textiles, maximizing the utility and the value of the products (H&M, 2017b). As part of this, H&M
set goals to only use recycled or other sustainably sourced materials and implement a voluntary Ex-
tended Producer Responsibility (EPR) system for product take-back post initial use (H&M, 2017b).
H&M joined the EMF as a global partner in 2015 (EMF, 2020) and aims to lead the change towards a
circular and renewable fashion industry, while being a fair and equal company (EMF, 2020). H&M is
a partner of the EMF’s ‘Make Fashion Circular initiative’, which works to create a textiles economy
fit for the 21st century (EMF, 2020). As a partner of the EMF, H&M explores opportunities to apply
circular economy principles across the organisation and its supply chain. This includes exploring solu-
tions to create a closed loop for textiles, setting targets to help a circular fashion industry stay within
planetary boundaries using a science-based approach, and applying circular economy principles to its
strategies for both commercial goods and non-commercial goods such as packaging (H&M, 2019a).
Philips: health technology
Royal Philips (Philips in short) is a ‘leading health technology company focused on improving peo-
ple's health and enabling better outcomes across the health continuum from healthy living and preven-
tion, to diagnosis, treatment and home care’ (Philips, 2020a). Philips employs approximately 80,000
employees with sales and services in over 100 countries (Philips, 2020a). In May 2016, its lighting
business was officially spun off from the business through an Initial Public Offering (IPO) (Philips,
2016). Philips Lighting (called ‘Signify’ as of 2018) became a separate company listed on the Euron-
ext Amsterdam stock exchange (Kramer et al., 2019). It is also investigating the creation of a separate
legal structure for the domestic appliances business within the Philips group (Philips, 2020f).
Philips joined the EMF officially as a global partner in 2014 (EMF, 2020) and its mission is to im-
prove the lives of two billion people a year by 2030 through meaningful innovation (Philips, 2020e).
Goals relate to aims to generating 25% of sales from circular products and services, closing the loop
by offering a trade-in on all professional medical equipment and taking care of repurposing and em-
bedding circular practices on sites such as sending zero waste to landfill (Philips, 2020a). Circular
business models, such as offering customers access to, rather than ownership of products, allow com-
panies to engage and retain customers, save costs and find new revenues, reduce resource risk, and fa-
cilitate smart asset management (EMF, 2020).
After its original ‘Healthy people, Sustainable planet’ 2016 - 2020 program, Philips made further En-
vironmental, Social and Corporate Governance (ESG) commitments until 2025 (Philips, 2020e). From
an environmental perspective for instance, Philips commits to 100% eco-design, increased energy effi-
ciency, expanded renewable energy sourcing, and circular economy solutions.
Sample and data analysis - interviews
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Interviewees were selected for their involvement in circular business model experimentation. With
such a novel topic, the sample consisted of a unique range of informants who are working on the fore-
front to pursue novel circular business models in their established organizations. A snowballing tech-
nique was used to identify the interviewees for this study, starting with the key informants from both
companies (H&M and Philips). The sample of interviewees can be found in Table 1. Interviews took
place via video-calls (Zoom, Skype for Business, MS Teams etcetera) between March and August
2020, had a duration of 30 minutes up to 1 hour and 10 minutes and lasted around 50 minutes each.
Semi-structured interviews discussed the following themes:
1. Types of business models and practices the company experiments with;
2. Piloting the new business model
3. Any outcomes achieved and whether the business model had scaled up
Interviews were recorded, notes were taking during interviews and transcribed immediately after-
wards. The qualitative data were analysed using thematic analysis focusing on the three aforemen-
tioned themes. These were a priori themes originating from the characteristics of the phenomenon be-
ing studied and the researchers’ values, theoretical orientations, and personal experiences (Ryan &
Bernard, 2003). As recommended by Ryan and Bernard (2003) the focus was on identifying repeti-
tions in topics, as well as similarities and differences between the responses during the thematic cod-
ing process. An initial version of the analysed data was presented to key informants in the company to
check for obvious errors, misrepresentations, or omissions of key practices and activities.
Table 1. Interviewees
#
Interviewee role
Duration
Company
H.1
Sustainable business development
1h10m
H&M
H.2
Circular business development (2 interviews)
1h11m
30m
H.3
Global sustainability & Innovation & incubation (joint in-
terview)
1h
H.4
Innovation & incubation
45m
H.5
Sustainability controller
47m
H.6
Project Manager, Global Sustainability
35m
H.7
Sustainability project manager
47m
H.8
Business developer – sustainable and circular business
models
52m
H.9
Circular business innovation lab
45m
P.1
Programme manager Circular Economy
1h
Philips
P.2
Senior Designer, Circular Economy
35m
P.3
Start-up venturing lead
50m
P.4
Design Business Partner
45m
P.5
Service designer
52m
P.6
Venture leader
50m
P.7
Legal business partner
45m
P.8
Subscription accelerator leader & Group Sustainability – In-
novation and Strategy (joint interview)
55m
P.9
Senior Director Sustainability
55m
4. RESULTS
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The following section shows the outcomes of the analysis for H&M and Philips. References to inter-
views are referred to in brackets based on Table 1 (e.g., H.2.; P. 8).
4.1 H&M - Circular business model experimentation
Overview of the innovations
Figure 1 shows an overview of the types of innovations pursued by H&M in the field of the circular
economy. H&M basically covers the whole range of the waste hierarchy, from recycling to reuse
(H.1). It started with projects on recycling and take back (H.1): Initially, innovations took place at the
product level, like the launch of the H&M ‘conscious collection’, which uses more sustainable materi-
als like organic cotton and new innovative materials like ‘Circulose ®’ (a dissolving pulp product
made by gently recovering cotton from worn-out clothes; see renewcell.com). Later innovations fo-
cused on the value chain like H&M’s Garment Collection Program, which allows customers to drop
clothes in a collection box in the stores to ‘close the loop’ of textile production by eliminating waste
and decreasing the environmental impact of the fashion industry. Customers may receive incentives
like a discount voucher for the next purchase (H&M, 2020c). Four key business model innovations
were identified through the case analysis: Care & repair; Re-commerce, Refurbishment, and Rental.
The focus here is on ‘customer centric circular business models’ (H.2) and ‘cater fashion and design’
to a growing population with less negative environmental impact (H.2; H.8).
Practices to experiment with and pilot the new business models
Care & Repair
H&M Take Care is about tips and tricks for repairing, remaking and refreshing your clothes to make
them last longer (H&M, 2020b). “After 70 years of selling [H&M] also got into the repairing busi-
ness!” (H.1). The H&M Take Care concept is divided into three categories (Sustainability Hub Nor-
way, 2018):
• Products – including laundry bags that collect micro plastics, stain removers, repair kits etc.
• Services – services will vary from country to country. In Norway, H&M did a Take Care pop-
up event in 2018 where simple repairs were done free of charge and more complicated repairs
were brought to a tailor at a fixed, predefined price. A drop-off station for collaborating start-
up Repairable’s services had also been launched. This was a 6-month trial in two cities.
• Guidance – a hub of information on how to take care of clothes, shoes and accessories.
Take Care started in 2018 as a pilot project in Hamburg, Germany, and Norway (the latter with start-
up Repairable). It has seven physical set-ups in various markets and is now (2020) available online for
inspiration (H.8). H&M thus started experimenting in big cities through collaborations with small en-
trepreneurs. For example, it collaborated with more traditional repair shops in Sweden, but also social
businesses helping female immigrants into the job market through learning skills like sewing. H&M
Take Care focused on the fashion customer (e.g. personal style, e.g. visible mending), but for the “can-
not be bothered group” it also started the repair services (H.1) and for the Monki brand (younger cus-
tomers) tutorials that fit the brand, which are to the point and about creating awareness (H.2). H&M
added “a fashion angle to it – to make it trendier” (H.3) and a social element for instance by working
with social enterprises and refugees to find positive links to sewing and repair (H.3).
With seven physical set-ups and online presence in around 40 markets (H.8), the digital environment
is global and the initiatives in stores are local done in collaboration with local partners (H.4). The
structure of experiments was quite iterative; the iteration being based on results (H.4). Unlike initia-
tives such as the Garment Collection Program that scaled quite quickly from a few to all stores (H.1),
there was no roll-out package yet for Take Care. H&M developed this package iteratively as they were
trialling the program and developed it into a generic package with room for localisation (H.4).
Refurbishment
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Refurbishment is about taking back, repairing and/ or upgrading existing products for resale. Refur-
bishment as a business model initiative in stores started in 2019 (H.2) with a collaboration between the
brand COS and The Renewal Workshop, a company specialized in repair services. The model works
as follows: COS collects written off products (damaged, customer returns etc.), and when a certain
volume gets reached, they are sent to The Renewal Workshop, where these items are assessed and re-
paired. Then the impact of reuse is calculated, based on weighing the product and assessing the mate-
rial (H.8). The first iteration consisted of 300 pieces distributed across 3 physical stores for pilots in
Stockholm, Berlin & Utrecht (H.2). Communication consisted of a yellow label telling the story and
savings of water and CO2. A reduction on the price was offered but generally higher price-point prod-
ucts (e.g. cashmere sweaters) were included, because repairs are not for free (H.2).
For Trial 1, the Renewal Workshop was still based in the USA and the trial took place in three mar-
kets. However, for Trial 2, the Renewal Workshop also opened its operations in Utrecht, which was
conveniently near to one of H&M Group’s distribution stores (H.8). There was an expansion of mar-
kets and also a lower cost reduction was trialled successfully to make the model more financially via-
ble. It should also be noted that at present this model is seen as a reduction of cost, rather than a new
revenue stream. The third iteration is planned (2020) and will move the model closer into their own
operations (H.8). So, with each trial, they come closer to reality, with each iteration being closer to
‘normal business operations’ (H.2, H.8). After expansion into other markets, expansion into other
brands might take place.
Re-commerce
Re-commerce is among the more mature busines model innovations and includes the following ge-
neric models: “Do it for me” (companies taking pictures for you, pricing, selling.) like the Sellpy col-
laboration, and peer-to-peer models. H&M first invested in Sellpy in 2015 and as of 2019 bought a
majority stake in the online second-hand platform. Through the investment in Sellpy a lot of learning
was possible (H.2). One of the early tests (small online pilot) between an internal H&M brand and
Sellpy was to evaluate whether there was an increase in value when a second-hand product is associ-
ated with a brand, and the test results of the test were positive. The Sellpy investment has thus focused
on digital piloting with a partner (H.6).
Another stream of activities related to selling second-hand in stores was through brand Afound: pre-
owned products were curated and integrated into the regular assortment in the Afound marketplace.
Through the marketplace set-up, this model was scalable (H.2; H.6). Other initiatives with various lo-
cal partners included offering vintage items in H&M’s flagship store in Berlin Mitte. “It was a beauti-
ful hand-picked assortment created with a local vintage dealer as partner” (H.2). For the brand Week-
day a part of its Stockholm store is used as a customer consignment of second-hand fashion under the
name Remarket (which started through a Black Friday flea market event). This has been attracting a
lot of attention, even later when it got a less prominent place in the store (H.2).
Rental and subscription
This category can be classified according to short-term occasional rental and longer-term functional
subscription. Occasional rental (e.g., dress rental for a week) was launched in the Stockholm flagship
store (Q4 2019). Pilot 1 was made possible through special collections bought back from H&M col-
leagues, which were curated, repaired and used for rental, plus a newly produced collection to be able
to cover all the sizes (H.8). The rental and subscription trial for women started with an opportunity of
building up the flagship store in Stockholm and received a lot of good press (H.2). The pilot for rental
took place in Q4 of 2019 and the cost was 350 SEK (about 34 EUR) per week for occasional rental.
8
In addition, there was a pilot in China for everyday wear in 2019: a collaboration between COS and
Ycloset (biggest platform for women’s wear subscription/ rental in China). It was a 3-month pilot ini-
tially (pre-COVID-19) but the pilot is still running (H.2). Within two weeks, over 80% of the ward-
robe was rented, so this can be seen as a success (H.2).
General insights on the process
The structure of experiments was quite iterative, each iteration being based on emergent results (H.2,
H.4, H.5). Pilots are run in a co-creative manner: focused on looking at the desired outcomes, using
tools and checklists, planning the next phases, and again going through the same cycle (H.7). This co-
creative manner also includes the use of hypotheses about the future business (H.1, H.2), analogous
with Ries (2011), but also involves design thinking (Brown, 2008) and effectual elements (Sarasvathy,
2009), by working with the resources and partners near and available (H.2; H.8).
Whereas several initiatives appear to originate directly from the stores, as part of central future store
planning, H&M has two entities inside the organization: “The Lab” to “gently challenge our company
from the inside” and the Co: Lab, involved in financing, like the recent investment in second hand
online platform Sellpy (H.2). The Lab supports the brands with ideas and initial test set ups, but in the
end the H&M brands have to drive the initiative themselves (H.4). The Lab uses a ‘design thinking ap-
proach’ with five iterative steps: understand, focus, ideate, test, evolve (H4; H.8). These steps are then
combined with KPI’s as milestones to advance to the next level of maturity in piloting. From the inter-
views (e.g. H.2, H.8) it emerged that H&M applied criteria conventional in design thinking, such as
feasibility, viability, desirability, (e.g., Brown, 2008; Osterwalder & Pigneur, 2010) and sustainability
during the experimentation and piloting processes (see also Baldassarre et al., 2020). KPIs were ap-
plied per factor with questions like: Do people understand it? Is it scalable? (H.8). The KPIs serve as
milestones to move from one stage (e.g. pilot 1) to the other (pilot 2). In the refurbishment case for ex-
ample, refurbishment 2.0 was launched (scaling to 9 markets) based on positive KPIs for all these cri-
teria (H.8). “Every time we pilot, it comes closer and closer to reality, like adding in the accounting,
writing off etcetera” (H.2).
Scaling up initiatives is more straightforward for value chain initiatives like garment collection, com-
pared to business model innovations (H.1). As one interview noted: “[With initiatives like garment
collection] we often start with one pilot and then roll it out in our 5,000 stores” (H.1). For the more
complex business model innovations this process is much more gradual and roll out packages are often
developed while in the piloting process with some generic aspects and room for localisation (H.4). It
has also been noted that H&M does online scaling up (e.g. Take Care website), but the rest is often
done more gradually store by store, country by country (H.1, H.4). For quicker scaling it was noted
that: “[H&M] would need a system that could facilitate physical stores [e.g. for time-efficiency; more
stores]. This being 2020 and having Generation C coming up as the customer – it needs to be digital
[…] everything needs to happen in parallel – digital and physical store learning”. (H.2). Yet, a suc-
cessful experiment is seen as a lever for change as the visible outcomes in a store will serve as a trig-
ger to do more (H.9).
Finally, regarding environmental impact improvement, interviewees were well aware of the uncertain-
ties (H.2; H.3; H.5; H.6; H.7). “Care and Repair and Refurbishment: this is always easier to evaluate
[from an environmental perspective]” (H.6). “Rental has the potential to be super good if designed the
right way. If designed the wrong way, impacts will be negative. This is of course exaggerated but we
need to be careful [with assumptions]” (H.6). Both re-commerce and rental impacts are highly depend-
ent on customer behaviours and displacement rates [H.2].
9
Figure 1. H&M circular business innovations. Sources: H&M (2014; 2015; 2017a; 2018; 2019b, 2019c) and interviews (author’s interpretation). Note.
Grey-blue initiatives (conscious collection & garment collection) are here for context only as they were not described as business model innovations
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Conscious
collection
Garment
collection
programme
Clothing care
and repair
Vision and goals
H&M Conscious (Actions) with
7 commitments, e.g. be climate smart,
reduce, reuse, recycle, use natural
resources responsibly)
Partnership Ellen
MacArthur Foundation
announced
New vision:
100% leading the chance
100% circular & renewable
100% fair & equal
New CEO: Helena
Helmersson
Re-commerce
Rental/
subscription
First ‘garden
collection’ -
First ‘Conscious Collection’ launched First products made with recycled fibres from
collected clothes
Goals: to use only recycled
and sustainably produced
materials by 2030 and to be
climate-positive throughout
the value chain by 2040
Garment Collection
launched -
Stockholm
Clever care
labels
announced
H&M clothing care info
On website
Garment collection launched for H&M Group
Focus on implementing garment recycling systems in all new markets within six months of opening
Clevercare.info website Groundwork for
Take Care pilot
Take Care pilot in German flagship store in
Hamburg & Take care website
Majority stake in 2nd hand platform Sellpy
Online trial vintage garments online
Sweden, brand & Other stories
Rental subscription trial at brand COS
China with YCloset
Weekday – second hand & vintage
Rental service Stockholm -
occasional rental
Lead the change
towards circular and
climate positive fashion
while being a fair and
equal company
Refurbishment
Collaboration COS & Renewal Workshop
V.2 + 3 of collaboration -
more markets
environmentally conscious materials
10
4.2 Philips - Circular business model experimentation
Philips consists of the following businesses: professional healthcare and consumer health and wellbe-
ing. Formerly, it also included Philips Lighting (now a separate entity, Signify) that pioneered ’light as
a service’ together with Thomas Rau (Kramer et al., 2019). In 2013 Philips announced its partnership
with the EMF and became a global partner in 2014. According to CEO Frans van Houten: “For a sus-
tainable world, the transition from a linear to a circular economy is a necessary boundary condition”.
(Philips, 2020d).
Philips (2020, a, b, c) as part of its circular economy strategy pursues various circular business models
(Figure 2). Examples include performance- and access-based models; refurbishment and parts recov-
ery; on-site or remote upgrades, software optimising resource use, and recycled materials. Perfor-
mance- and access-based models such as subscriptions, allow customers to access products as a ser-
vice. The refurbishment and parts recovery proposition offers customers pre-owned systems that have
been thoroughly refurbished, and quality-tested to provide solutions at a more affordable price. On-site
or remote upgrades consist of key components being upgraded so that the system is like new. One ex-
ample of recycled materials is Philips Performer Ultimate vacuum cleaner, containing 36% recycled
plastics (as a percentage of the total plastics content) (Philips 2020c). For software, Philips investi-
gates how software can help optimize the use of hardware or lower the need for any hardware.
Focusing on performance and access based models, the Philips (Signify) pay per lux model has been
described quite extensively as a case; it was developed when various factors came together, such as
legislators phasing out incandescent lightbulbs, the rapid development of LED technology, LED’s
longer lifetimes and increasing price competition in the light industry (Kramer et al., 2019). Pay per
lux offers ‘light’ as a service to businesses such as airports and municipalities so they are secured of
the right high-performing lighting while Signify takes care of the replacement and recycling.
The focus in this chapter will be on the ongoing Philips circular business models. The following will
focus on the Lumea subscription, which is a scaled-up model out in the market and was discussed
most extensively during the interviews.
Practices to experiment with and pilot the new business model
Lumea: two co-existing business models
Lumea is a hair removal device which uses Intense Pulsed Light (IPL) for long-term hair removal.
Whereas the initial starting point for Lumea was to sell the product, it now has two co-existing business
models: a traditional buy and a subscription model. The subscription-based model enables consumers
to subscribe to a new product (or refurbished, tested and repacked product) and gives them the freedom
to purchase the device during the subscription (P. 6; P. 7).
The process of experimentation with new business models often starts with the ‘customer pain points’.
In this case, the Lumea is relatively expensive, requiring somewhat specialist knowledge and advice,
and people do not know whether it works for them (P.1; P.4). Subscription (and the option to buy later)
can then work like a ‘try before you buy’ model (P.1; P.4; P.6.). After understanding the customer pain-
points, different techniques were used to think about how to solve the pain-points, business model im-
plications and customer experience. These include, for example, mapping the business model, storytell-
ing, developing prototypes etcetera (P.1). In interviews and surveys, “we asked different questions all
the time to get good responses and insights. We did several focus groups with five to six people each.
We have the Lumea app […] We talk with the client. This is super important” (P. 6).
11
In the early phases, service maps were created showing the different customer points of contact and the
service journey (P. 4) and further interviews were conducted with customers that made it clearer how to
communicate the offer (P. 5). The product behind a circular model may be more expensive and “as
service designers we could help going from selling a box to selling a service” (P. 4). The early interviews
with potential customers were also very polarising: some got very emotional about hygiene to the extent
that they did not want to try subscription whereas others were quite rational and not concerned about
this at all (P.5). This showed the need to test the model in practice early on. “We are moving away from
the more traditional things like focus groups to the better type of learning by putting it out there and
trying it out” (P. 1).
Philips worked with Minimum Viable Products (very early versions of a product or service without all
aspects included), which are part of the Lean Startup approach (P.3; P. 9). One of the early tests con-
sisted of offering a refurbished subscription option next to the original buy option and 40% of custom-
ers went for this (P. 5). “It was, like Amazon, a small note next to the normal ‘pay’ option to go for
this cheaper one [...] But actually in our experiment we looked at action – would people subscribe?”
(P.5)
Iteration and testing are continuing for ongoing learning even when a pilot is already launched, and the
offering is in the market. To better understand and develop the service, “[Philips] ran some workshops
in a multi-stakeholder setting, also while the pilot was already running” (P.4). To capture the full expe-
rience of the experiment, they also interviewed customers using the service (P. 4) and small targets were
introduced. For example, at some point “[Philips] had the policy for people to speak with at least three
people [customers] over the phone per week” (P.6).
General insights on the process
The experimentation process to go from ‘buy’ to ‘subscription’ is described as highly iterative (P.5; P.
7), first starting with a fuzzier phase with design thinking type of approaches (P. 2). A clear structure
lacks a little early on, because “if you structure the front end of innovation, it becomes less innovative”
(P. 1). Philips quickly went for ‘live learnings’ with customers. The first iterations were qualitative like
interviews and interactions through online communities, which were then followed by more quantitative
elements, such as the number of Facebook clicks or likes for the new offering (P.2; P.6). In addition,
market studies and surveys were being conducted to gather additional in-depth insight (P.2; P. 3).
Philips has many co-existing processes, although sometimes there are deviations from the official pro-
cesses to allow for an innovation to be accelerated (P. 3). On the one hand, Philips makes use of the
Bell Mason (pre-seed, alpha, beta) venturing process (Bell Mason Group, 2020). On the other hand, it
has the value proposition creation process (which is about the consumer, business, and offer) and the
development logic of the new proposition (P. 3). “There is a beginning and an end, but everything in
between is very flexible” (P. 3). The organisation is quite process-driven, but sometimes there are in-
novation champions that deviate from the main process to build a new business model (P. 9). Yet, it is
a fine balance, knowing when and how it is acceptable to deviate from the process to accelerate an in-
novation, and knowing when there is a need to follow the process (P. 9), as processes are implemented
for a reason and all innovation will need to fit within the regulatory framework (P. 7). Deviations from
the process only take place under controlled environments with limited risk and in the consumer seg-
ment, where Lumea sits (P. 1).
The Bell Mason Framework for Corporate Venture Development (Bell Mason Group, 2020) inspired
the Philips venturing process (P. 3; P.8). In Philips’ case this translates into three broad phases, where
phases 1 and 2 are about generating ideas (a lot of consumer testing/ interaction) and phase 3 is about
the pilot and alpha/ seed phases (P. 3; P. 8). It was noted that, as a large established business, “you
typically have a mix of expert and Lean Startup values; tool sets like digital testing, surveys; Mini-
mum Viable Products and new business models and their sustainability impacts” (P. 3). “Many com-
panies seem to have learned from Lean Startup (...) and gave it their own twist” (P. 3). “Our own twist,
which is also close to our own capabilities related to design consists of [elements from] Co-creation,
12
Design thinking and the Lean startup. When we speak to others [multinationals also experimenting
with business models for the circular economy], we notice that 80% of the processes are similar” (P.
3). This more informal knowledge sharing seems to reconfirm current practices and strengthens such
activities in the business (P. 3). So, the Bell Mason Framework presents the broad venturing phases,
and in addition, various methods and practices building on Lean Startup and design thinking.
To scale up a proposition within the business there are two broad ways: integrate fast in the normal
business or keep it a separate entity (P. 3). “With Lumea we integrated all quite quickly” (P. 3). Yet, it
was really a service inside a large business: Philips Lumea worked a bit “like a start-up in a large busi-
ness – the processes and tools and finance were [at least initially] not aligned” (P. 4). The historical
aspect and lock-in is very important here, for example, how you work with vendors: business model
innovation really requires a lot of organisational change (P. 1). All key stakeholders in the business –
consumer research, consumer care, quality control, packaging etcetera - were involved in the early be-
ginning. Philips continues to have a multi-functional team that keeps on experimenting [for Lumea]
(P. 4).
As for the stage of scaling up, Philips is beyond the pilot phase and rolled out Lumea subscription in
various markets. Scaling up is about understanding what is replicable in the process: the customer in-
terface is quite similar, but the legal context is different and determines what is possible (P.5; P. 7).
For scaling up, many of the basic elements are the same, but it’s about the details and the messaging:
How does it work for you in your context? (P. 3) “In order to scale up, the team has to be formed obvi-
ously [legal, finance etc]. That’s the most important part. There needs to be a playbook with learning
to be shared: Which countries? Which archetypes? [e.g. subscription]” (P. 8). The continuation to the
next phases is based on the number of subscriptions; the team; the business case and contact with the
consumer (significant amounts) (P. 8). Philips is continuing to further scale their subscription models
across their businesses. It is important to keep in mind that this is not about pushing a subscription
model just for the sake of subscription, but truly answering the question ‘does this model solve a cus-
tomer need?’ (P. 1; P. 3).
Finally, regarding environmental impacts, subscription can be a lever for the circular economy (P. 4).
However, “People don’t buy it for that! It’s about being hair-free” (P. 5). Being circular may be a dif-
ferentiation factor in addition to the customer benefit (P. 5). It was also mentioned that sustainability
was not pursued further in the communication efforts from the proposition after a few months, because
40% of surveyed people did not see it as a key deciding factor. So, after the first pilot, sustainability
was removed from the communications. According to interviewee P. 8, subscription can be seen as an
important enabler for the circular economy. Think about the [other non-Lumea case example]. […]
refurbishment […] is even needed for the business case” (P. 8). Overall, there is a “need to understand
how to keep in sustainability and how to best position it” (P. 4). ‘More circular’ might mean more ex-
pensive (e.g. better design) and the role of service design could be to bring down cost (P. 4). Indeed,
the importance for cheaper refurbishment and returns to lower the cost of the service and the need to
find attractive add-on services, were mentioned to make the model even more viable (P. 6). Finally, it
was noted that the Lumea experiment may be the ignition for new opportunities towards sustainability,
because the capability building (infrastructure, payment, refurbishing) for subscription could be a lever
for other models (P. 9). Now the basis of subscription is there and better understood, the whole offer-
ing could be made more sustainable and serve as the basis for other models (P. 9).
13
Figure 2. Philips circular business innovations. Sources: Kramer et al. (2019); Philips (2014; 2015; 2017; 2020a-e); Philips Group Sustainability (2020)
Holland Circular Hotspot (2020); Interviews. Note. Grey- blue initiatives— refurbishment, recycled materials, other circular contributions, pay per lux —
were not investigated in-depth but are included for context
1971 _____ 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Pay per Lux
(now Signify)
Refurbishment
Recycled
materials
Vision and
goals,
achievements
Partnership EMF announced. CEO van
Houten: for a sustainable world, the
transition from a linear to a circular
economy is a necessary boundary
condition (…)
Goal:15% of sales from
circular products and
services, recycle 90%
of operational waste
and send zero waste to
landfill
Philips Lumea
subcription
Architect Thomas Rau,
customer of Philips
looking for buying ‘light
as a service’ for new
offices
Philips market
leader in LED in
Europe and the
Americas, and
leader in lamps
more generally
in all regions
2003:
European lamp manufacturers incl Philips founded
Collection and Recycling Service Organizations (CRSOs)
New refurbishment facilities in
Best, Netherlands
Lumea subscription trials start
Reviewed/ republished WEEE directive on
how to handle electronic waste
Various products
show a % recycled
content
Healthy people,
‘Sustainable Planet
program 2016-2020
aligned with several
SDGs
Philips 3rd in
Greenpeace
Guide to
Consumer
Electronics
Philips sector
leader Down
Jones
Sustainability
Index
Including social
dimension in
company vision:
healthier
sustainable world
Philips 1st
environment
al corporate
function
Argentina and
Russia phasing out
incandescent
lamps
US and Canada
phasing out
incandescent
lamps. High
adoption of LED
in outdoor and
commercial
Philips lighting spins of
as a separate company
on Euronext
Amsterdam stock
exchange
Philips lighting
renamed ‘Signify’
Various refurbished products
on offer for consumers
80% of materials
extracted from lamps
can be reused
Lumea mainstreamed
and model explored for
other markets
1989. First medical
refurbishment at Philips
New 2025 Environmental,
Social & Governance
commitments, e.g. 25%
sales from circular
products/ services, 75% of
energy from renewables
66% of sales from green products and
services, 13% from circular solutions
Other circular
contributions
95% of operations use energy from renewables
85% of
operational waste
is recycled
Use of recycled plastics in
product portfolio
14
5. DISCUSSION AND CONCLUSIONS
The circular economy requires innovations at the process, product, value chain, business model and
ecosystem levels. Business model and ecosystem level innovation may be the most impactful, because
they do not only affect the process or product, but the whole system around it (Konietzko et al.,
2020a). This research focuses on business model innovation and investigated the following: What are
the circular business model experimentation practices in large established companies? This question
was investigated through the cases of H&M and Philips and an evaluation of their circular business
model experimentation processes. See Table 2 for a brief overview.
Table 2. Overview of innovations and practices identified
Circular economy types of innovation
Practices and approaches
From product and material, to value
chain and more complex business model
innovation
Effectual approach (e.g., piloting involving colleagues)
Design thinking techniques (e.g., service maps, co-crea-
tion techniques)
Lean Start-up approaches (e.g., Minimum Viable Prod-
uct, hypothesis testing)
Venturing process (from ideas to pilot, alpha and beta
testing)
This study identified various approaches to experimentation, echoing earlier work by Chesbrough
(2010), including effectuation (Sarasvathy, 2009), design thinking (Brown, 2008) and Lean Start-up
(Ries, 2011). Effectuation, based on innovating ‘using what is available’, consisted of working with
partners within the vicinity or setting up pilots where partners are available using existing resources
(like clothing buy-back from colleagues). Design thinking was exemplified by a 5-step iterative ap-
proach within H&M, and an iterative approach using designer tools like service maps at Philips. Lean
Startup was explicitly referred to as an approach at Philips and more implicitly at H&M (e.g., referring
to testing hypotheses about the future business). Philips specifically mentioned the use of a venturing
process (BMG, 2020). Companies were found to use a mix of these approaches together with their
own tools and methods.
Over time, both companies evolved from more incremental innovations (not changing the fundamen-
tals of business operations) at the material and product level, to more complex business model innova-
tions, such as rental and subscription models (see also Berends et al. 2016; Laasch, 2019). For exam-
ple, Philips initially innovated from tungsten light bulbs towards LEDs and H&M developed the ‘con-
scious collection’ using sustainable materials. The process of circular business model innovation has a
‘fuzzy front end’ like in product innovation, where design thinking is used to develop and refine value
propositions. When initial experiments are set up, criteria from design thinking (e.g., feasibility, via-
bility, desirability, and sustainability for H&M) are used as milestones to advance towards a more ma-
ture pilot. A significant number of iterations is described by the case companies with elements that are
difficult to plan in advance. In contrast to innovations at the value chain level (e.g. clothing collection
in stores), circular business model innovation seems less straightforward to scale up and needs a more
local understanding of customs and practices, and legislations in relation to the new business model.
The circular business model experimentation process appears to hold significant promise for business.
It is seen as a form of inspiration to others in the business, and a platform for bringing in more sustain-
ability elements once the model is ‘proven’ and works. The companies were realistic about the uncer-
tainties around the positive environmental impact associated with new business models. This needs to
be more fully understood and circular economy and sustainability elements need to be brought in to
further improve the credentials. Hence, experimentation has focused on proving the model, followed
by optimising the feasibility, viability, desirability, and sustainability and circularity, as the piloting
evolves.
15
For practitioners it is recommended to start experimenting for the circular economy, albeit initially at
the product or material level, as this may naturally lead to more complex and impactful change at the
value chain and business model level. It is recommended to build up the complexity of experiments
over time towards practices that come closer to business operations, and perhaps start in one shop or
with one brand or product before scaling up. Various approaches to experimentation have been identi-
fied (Table 2) which can serve as a source of inspiration.
The study has the following limitations. First, in large complex multinationals it is nearly impossible
to trace all circular economy practices. Second, a larger sample of businesses would have provided
richer insights. Yet, circular business model innovation in large multinationals is still emerging and is
not yet mainstream. Third, the study could be enriched by multiple perspectives (e.g., customers,
NGOs). Finally, a longitudinal study could trace business model impact – both commercially and en-
vironmentally – over time. For this, studying the ecosystems of stakeholders, including the supplier
network and consumers and their behaviours, would be an avenue for future research.
ACKNOWLEDGEMENTS
I would like to thank the expert interviewees at H&M and Philips for freeing up their valuable time to
share their insights about circular business model experimentation and advance the work on business-
driven circular economy transitions. I would also like to acknowledge the European Research Council
funding that made this work possible. This work has received funding from the European Union's
Horizon 2020's European research Council (ERC) funding scheme under grant agreement No 850159,
project Circular X.
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