Circular Business Models: Overcoming Barriers, Unleashing Potentials

Business models are key to promoting acceptance of the circular economy among companies. Ideally, a business model should align circular value creation activities with opportunities to capture economic value. However, a circular economy cannot be achieved through the isolated optimisation and profit maximisation of individual actors’ business models. Effectively transforming existing value chains into value cycles requires a holistic approach and the design of circular ecosystems consisting of complementary value-generating actors.

Between January 2020 and October 2020, the Circular Economy Initiative Deutschland’s Circular Business Models working group devised a scientifically based roadmap for the successful implementation of business practices for advancing a Circular Economy (CE).

The report “Circular Business Models: Overcoming Barriers, Unleashing Potentials” represents the main outcome of the working group’s deliberations, covering

• the identification and description of actor-specific Circular Business Models (CBMs) and their interaction in business ecosystems,

• an integrated presentation of existing barriers to CBMs,

• the identification of digital and regulatory enablers for CBMs,

• the derivation of concrete recommendations for action addressed to decision makers in politics, business and science in order to accelerate system transition towards a CE.

The members thus support the initiation, implementation and long-term anchoring of the Circular Economy in Germany and beyond.

The working group’s 21 members are representatives of leading academic institutions, German businesses and organisations known for their expertise in the field of Circular Business Models. This composition allowed the group to achieve its goal of ensuring a scientifically substantiated and, as far as possible, holistic approach to the topic.

The report describes 22 main business model patterns that provide decision-makers from business with guidance for determining the best system configurations. The patterns are based on a) role in the value cycle, b) core circular strategy and c) related service level. In addition to analysing (regulatory, financial, technical, etc.) barrier categories, a number of often mutually reinforcing barriers to core CE strategies were identified between a) providers (suppliers, producers, retailers, repair providers, logistics providers, etc.), b) users (both professional users such as businesses and consumers) and c) the product (i.e. technology, design) and related services.

Digital technologies have huge potential for connecting smart CE strategies by facilitating everything from retrospective data analysis to AI-enabled data forecasting. Through targeted provision of the relevant information, digital technologies can play a key role in overcoming barriers to circular business models and enabling the operationalisation of circular material, component and product flows.

At present, we lack a consistent regulatory framework for a circular economy. Instead, aspects relating to the CE are addressed by different, sometimes conflicting regulations such as waste legislation and the EU Ecodesign Directive. It is therefore important to develop a holistic regulatory framework that prioritises waste prevention through the extension of product lifetimes, reuse, remanufacturing and the formulation of circular product design requirements and standards.