Although it is a contemporary movement, the circular economy is based on old ideas [74
]; it is thus reasonable to outline its specificity. This includes the definitions, the origins of the movement, and its main principles. CE was probably first defined and conceptualized in the Ellen MacArthur Foundations report, as “an industrial system that is restorative or regenerative by intention and design” [4
]. This means pursuing and creating the opportunities for a shift from an “end-of-life” concept to Cradle-to-Cradle™, from using unrenewable energy towards using renewable, from using toxic chemicals to their elimination, from much waste to eliminating waste through the superior design of materials, products, systems, and also business models [4
]. The circular economy becomes a new vision of the treatment of resources, energy, value creation and entrepreneurship [16
Linder and Williander [18
] define a circular business model as “a business model in which the conceptual logic for value creation is based on utilizing the economic value retained in products after use in the production of new offerings”
(p. 2). Mentink [11
] defines CE as “an economic system with closed material loops,
” and a circular business model as “the rationale of how an organization creates, delivers and captures value with and within closed material loops
” (p. 35). He argues that circular business models do not necessarily aim to balance ecological, social and ecological needs, in contrast to business models, although at the same time they can serve sustainability goals [11
]. However, another approach is also supported in the literature. Most recently, Scott [3
] provided a useful conceptualization of CE in relation to sustainability. He argues for understanding the circular economy as “a concept used to describe a zero-waste industrial economy that profits from two types of material inputs: (1) biological materials are those that can be reintroduced back into the biosphere in a restorative manner without harm or waste (i.e: they breakdown naturally); and, (2) technical materials, which can be continuously re-used without harm or waste”
(p. 6). In turn, he defines sustainability as the capacity to continue into the long term and, at the same time, as a mechanism that enables the circular economy to work [3
The general concept underlying the circular economy has been developed by many schools of thought, such as Regenerative Design, Performance Economy, Cradle to Cradle, Industrial Ecology, Biomimicry, Blue Economy, Permaculture, Natural Capitalism, Industrial Metabolism and Industrial Symbiosis [2
]. Those schools of thought are complementary to each other and provided the foundation for the main principles of this new approach to economy [2
Design out waste/Design for reuse
Build resilience through diversity
Rely on energy from renewable sources
Think in systems
Waste is food/Think in cascades/Share values (symbiosis)
This variety of concepts supports Scott’s [3
] approach to the relation between sustainability and circular economy.
The fundamental constructs and constituent elements of circular business models can be derived from the main principles of the circular economy. In the literature, such components are understood and defined variously, for instance: the ReSOLVE (regenerate, share, optimize, loop, virtualize, exchange) framework [4
], ways of circular value creation [7
], normative requirements for business models [21
], and areas for integration [22
There are six business actions to implement the principles of the circular economy and which represent major circular business opportunities depicted by the ReSOLVE framework [23
]. Regenerate signifies the shift to renewable energy and materials. It is related to returning recovered biological resources to the biosphere. Thus it aims to reclaim, retain, and regenerate the health of ecosystems. Share actions aim at maximizing utilization of products by sharing them among users. It may be realized through peer-to-peer sharing of private products or public sharing of a pool of products. Sharing means also reusing products as long as they are technically acceptable to use (e.g., second-hand), and prolonging their life through maintenance, repair, and design-enhancing durability. Optimise actions are focused on increasing the performance/efficiency of a product and removing waste in the production process and in the supply chain. They may also be related to leveraging big data, automation, remote sensing, and steering. What is important is that optimization does not require changing the product or the technology. Loop actions aim at keeping components and materials in closed loops. The higher priority is given to inner loops. Virtualize actions assume to deliver particular utility virtually instead of materially. Exchange actions are focused on replacing old materials with advanced non-renewable materials and/or with applying new technologies (e.g., 3D printing). It may also be related to choosing new products and services [23
Renswoude et al.
] identify similar ways of circular value creation, pertaining to the short cycle, where products and services are maintained, repaired and adjusted, to the long cycle which extends the lifetime of existing products and processes, to cascades based on creating new combinations of resources and material components and purchasing upcycled waste streams, to pure circles in which resources and materials are 100% reused, to dematerialized services offered instead of physical products and to production on demand.
Other studies identified four normative requirements for business models for sustainable innovation, grounded in wider concepts such as sustainable development [21
]. The first is a value proposition reflecting the balance of economic, ecological and social needs. The second is a supply chain engaging suppliers into sustainable supply chain management (materials cycles). The third is a customer interface, motivating customers to take responsibility for their consumption. The fourth is a financial model, mainly reflecting an appropriate distribution of economic costs and benefits among actors involved in the business model [21
]. Boons and Lüdeke-Freund [21
] (p. 13) also noticed that comparable conceptual notions of sustainable business models did not exist.
] (p. 34) used a similar approach to the business model as Frankenberger et al.
], and outlined the changes of business model components needed for developing a more circular service model, such as:
value propositions (what?)—products should become fully reused or recycled, which requires reverse logistics systems, or firms should turn towards product-service system (PSS) and sell performance related to serviced products
activities, processes, resources and capabilities (how?)—products have to be made in specific processes, with recycled materials and specific resources, which may require not only specific capabilities but also creating reverse logistics systems and maintaining relationships with other companies and customers to assure closing of material loops
revenue models (why?)—selling product-based services charged according to their use
customers or customer interfaces (who?)—selling “circular” products or services may require prior changes of customer habits or, if this is not possible, even changes of customers
Laubscher and Marinelli [22
] identified six key areas for integration of the circular economy principles with the business model:
Sales model—a shift from selling volumes of products towards selling services and retrieving products after first life from customers
Product design/material composition—the change concerns the way products are designed and engineered to maximize high quality reuse of product, its components and materials
IT/data management—in order to enable resource optimization a key competence is required, which is the ability to keep track of products, components and material data
Supply loops—turning towards the maximization of the recovery of own assets where profitable and to maximization of the use of recycled materials/used components in order to gain additional value from product, component and material flows
Strategic sourcing for own operations—building trusted partnerships and long-term relationships with suppliers and customers, including co-creation
HR/incentives—a shift needs adequate culture adaptation and development of capabilities, enhanced by training programs and rewards
One of the most important components of circular business models is the reversed supply-chain logistics. A comprehensive review on this subject has been done by Govindan, Soleimani, and Kannan [24
3.4. Conceptual Models
The relationships between constituent elements of a circular business model have been conceptualized in the literature. Every business model is both linear and circular to some extent [7
]. This is because every company optimizes its processes, virtualizes products or processes (using e-mails instead of traditional letters) and/or uses some resources from material loops, and thus introduces some principles of the circular economy, albeit not necessarily deliberately. Renswoude et al.
] put it differently—“100% circular business models do not exist (yet). Not creating any waste at all is difficult to achieve for physical and practical reasons (p. 2)”. For this reason, the main conceptual frameworks of business models apply to the circular economy. However, some frameworks of circular business models have been developed for either type.
There are quite many conceptual frameworks of business models in general [75
]. Thus, a further systematization became a reasonable direction of research. And so, there are two more comprehensive propositions, one by Wirtz [9
], and one by Osterwalder and Pigneur [8
]. Wirtz (2011) [9
] made a systematic overview of the business model concept, and proposed an integrated business model consisting of nine partial models divided into three main components—strategic, customer and market, value creation. The strategic component comprises three models regarding the strategy (mission, strategic positions and development paths, value proposition), resources (core competencies and assets), and network (business model networks and partners). The customer and market components consist of customer model (customer relationships/target group, channel configuration, customer touchpoint), market offer model (competitors, market structure, value offering/products and services), and revenue model (revenue streams and revenue differentiation). The value creation component encompasses production of goods and services (manufacturing model and value generation), procurement model (resource acquisition and information), and financial model (financing model, capital model and cost structure model).
A more recognized and applied framework of a business model distinguishes nine building blocks [83
], and is conceptualized as the business model canvas (BMC) [8
]. The BMC consists of [8
Customer segments that an organization serves
Value propositions that seek to solve customers’ problems and satisfy their needs
Channels which an organization uses to deliver, communicate and sell value propositions
Customer relationships which an organization builds and maintains with each customer segment
Revenue streams resulting from value propositions successfully offered to customers
Key resources as the assets required to offer and deliver the aforementioned elements
Key activities which are performed to offered and deliver the aforementioned elements
Key partnerships being a network of suppliers and partners that support the business model execution by providing some resources and performing some activities
Cost structure comprising all the costs incurred when operating a business model
Most recently, value proposition design has been developed, and comprises of six building blocks, which are a detailed description of the two BM canvas blocks—value propositions and customer segments [37
]. Value proposition is composed of the products and services offered to the customer, the relievers of customers pains, and the creators of customer gains pertaining to the tasks and jobs he or she needs to accomplish with the assistance of the offered product or service. Thus, on the customer’s side are the jobs, pains and gains related to doing the jobs. The visualization of both canvases are presented in Figure 2
The Business Model Canvas and the Value Proposition Canvas. Source: Osterwalder and Pigneur [8
] and Osterwalder et al.
, (2014) [37
]. Reproduced with permission from Strategyzer.com and Strategyzer AG.
The Business Model Canvas and the Value Proposition Canvas. Source: Osterwalder and Pigneur [8
] and Osterwalder et al.
, (2014) [37
]. Reproduced with permission from Strategyzer.com and Strategyzer AG.
The BM canvas has been recognized and used for further conceptualizations of circular and sustainable business models, such as Barquet et al.
], Lüdeke-Freund [12
], Dewulf [13
], Mentink [11
], and Nilsson and Söderberg [44
]. Barquet et al.
] used the BM canvas for identification and classification of the product service systems’ characteristics according to a business model structure. Moreover, the authors used it as design tool for a circular business model [10
]. Lüdeke-Freund [12
] applied the business model canvas (BMC) developed by Osterwalder and Pigneur [8
] to the context of eco-innovation. In Lüdeke-Freund’s framework, the canvas is a central component, but linked with others, both preceding and subsequent. The infrastructure management (partners, resources, activities) is highly impacted by the development of marketable eco-innovations, barriers of sustainable development, and marketing eco-innovations. Thus, contextual factors are important enablers for a business model to operate in practice. On the other hand, eco-innovations create an extended customer value (a mix of customer public value, customer equity and customer value). Dewulf [13
] developed an extended business model canvas with two additional components—societal costs and societal benefits. Mentink [11
] developed a business cycle canvas, which applies the concept of business cycle to the business model framework. This proposition is focused on the circulation of materials in a closed loops, and thus is more useful to analyze if the company’s network will support material loops. Nilsson and Söderberg [44
] developed a business model canvas adjusted for the urban mining segment and evaluated the business model element differences between the traditional C and D and urban mining industry.
Some other conceptual frameworks exist in the literature related to sustainability. For instance, Stubbs and Cocklin [38
] developed a case study-based conceptualization of a sustainability business model, consisting of two types of attributes—structural and cultural ones. Each type has its economic, environmental, social, and holistic characteristics. Structural attributes are depicted by:
Economic characteristics, such as external bodies expecting triple bottom line performance, lobbying for changes to taxation system and legislation to support sustainability, keeping capital local
Environmental characteristics, such as a threefold strategy (offsets, sustainable, restorative), closed-loop systems, implementation of services model, operating in industrial ecosystems and stakeholder networks
Social characteristics, such as understanding stakeholder’s needs and expectations, educating and consulting stakeholders
Holistic characteristics, such as cooperation and collaboration; triple bottom line approach to performance; implementing demand-driven model; adapting organization to sustainability.
Cultural attributes are depicted by:
Economic characteristics, such as considering profit as a means to do something more (“higher purpose”), not as an end, which is also a reason for shareholders to invest
Environmental characteristics, such as treating nature as a stakeholder
Social characteristics, such as balancing stakeholders’ expectations, sharing resources among stakeholders, and building relationships
Holistic characteristics, such as focusing on medium to long-term effects, and on reducing consumption
Most recent contributions to conceptual models concern the dynamics between components of the business model. For instance, Roome and Louche [39
] developed process model of business model change for sustainability
, which explains how new business models for sustainability are fashioned through the interactions between individuals and groups inside and outside companies. Gauthier and Gilomen [40
] analyzed transformations of the elements of sustainable business model and identified a typology of such changes (see Subsection 3.8 in this paper). Abdelkafi and Täuscher [41
] developed a system dynamics-based representation of business models for sustainability. Not only has the dynamic of internal business model components been researched, but also the dynamics in relation to the business model environment. One of the key issues in this regard pertains to networks. Jabłoński [42
] outlined the process of transition from an idea to the operationalization of the business model by searching for business model components from the network. However, the static approach is also being investigated. For example, Upward and Jones [43
] developed the strongly sustainable business model ontology. Another approach proposed by Bautista-Lazo and Short [84
] conceptualized an All Seeing Eye of Business model, which addresses the types of waste and their potential as a profit or loss generator.
3.5. Design Methods and Tools
There are several design methods and tools for the business model in the literature. Some of them focus on enhancing the design process [3
], and others are used in particular situations and for particular business models [32
Joustra et al.
] and Jong et al.
] identified five steps to support for small and medium enterprises (SMEs) to enter the circular economy. The first two steps comprise reading about the CE, and learning about the readiness of the company, partners and stakeholders in the supply chain for CE. The next two steps suggest evaluating redesign opportunities that might bring the products into a more circular business model, and to understand the service that a company could potentially deliver and how the model needs to be redesigned to enable this. The last step tests whether the value delivered is the value that customers expect and will pay for.
] proposed the 7-P model as a starting point toward understanding and applying the mechanism of the circular economy in a business. This model takes the practitioner’s approach and describes seven main components, which can be divided into three steps. The first is to learn and understand the fundamentals of the circular economy, and what the change will concern, and decide on establishing sustainability as an objective (prepare). The next step is to organize and implement the mechanisms of the circular economy related to the process, preservation, people, place, product, and production. The last step is to enable and support implementation of CE, mainly through building teams and managing change (People).
Renswoude et al.
] developed the business model scan, a methodology to enhance a transition of the company into a more circular form. It consists of six process stages about which many questions are asked. Those questions are related to value proposition, design, supply, manufacturing, use, and next life. Osterwalder and Pigneur [8
] proposed five stages of business model design process, encompassing mobilize, understand, design, implement, and manage. This methodology is supported by the business model canvas (described in Section 3.4
). BMC has been applied to research and design circular business models [10
]. Jablonski [42
] distinguished eleven stages of the design and operationalization of the company’s technological business model embedded in the network. Parlikad et al.
] identified the information requirements for end-of-life decision making and established a possible set of characteristics of a lifecycle information system to support management. They also reviewed existing product lifecycle information systems and divided them into two categories. Design/disassembly data-sharing systems encompass: Inverse Manufacturing Product Recycling Information System (IMPRIS), Recycling Passport, Products Lifecycle Management System (PLMS), Integrated Recycling Data Management System (ReDaMa). Lifecycle information monitoring systems comprises of: Information System for Product Recovery (ISPR), Life Cycle Data Acquisition System (LCDA), Green Port [45
]. Cleaner production audits are undertaken to identify opportunities for cleaner production. The methodology for the cleaner production opportunity assessment has been outlined by El-Haggar [32
] (p. 29), and consists of many activities related to and focused on the following: team, pre-audit, surrounding environment, operations and processes, inputs and outputs, wasteful processes, material and energy balance, opportunities, priorities, implementation, assessment, process sustainability, sustainable development. Another important method is life cycle assessment [85
] which is explained as “a tool for the analysis of the environmental burden of products at all stages in their life cycle—from the extraction of resources, through the production of materials, product parts and the product itself, and the use of the product to the management after it is discarded, either by reuse, recycling or final disposal (in effect, therefore, ‘from the cradle to the grave’)
] (pp. 5–6). Scott [3
] (p. 81) also suggests that environmental audits, such as compliance audit, waste audit, waste disposal audit, water audit, can be used. Mentink [11
] discussed a few other methods and tools, such as: New Framework on Circular Design, Practical Guide for PSS Development, Circular Economy Toolkit, Play it Forward, 4-I Framework, and Sustainable Business Model Canvas.
3.6. Adoption Factors
Factors affecting CBM adoption are mostly related to general factors [5
], human resources [3
], political system and legislation [3
], IT and data management [3
], and business risks [11
]. There are also crucial socioeconomic implications, justifying the efforts towards CE [4
], and other enablers such as leadership, collaboration, motivation through the concept itself, and customer behavior [53
General factors encompass conditions which need to be fulfilled to secure profitability of closed circles. Winter [47
] (p. 16) points out five of them: sufficiently valuable materials/products, control of product or material chain, ease of reuse, remanufacture or recycle materials/products, predictable demand for future products, keeping materials/products concentrated and uncontaminated. Planing [5
], however, argued that customer irrationality, conflict of interest within companies, misaligned profit-share along the supply chain, and geographic dispersion could be the reasons for rejecting circular business models. Scheepens et al.
] argue that transition to CE is impacted by different factors on several levels: societal, regulatory, services and infrastructure, and product and technology. Sivertsson and Tell [71
] identified barriers to business model innovation in the agricultural context for each of the nine building blocks of the business model canvas (by Osterwalder and Pigneur [8
]). Pearce identified six kinds of customers whose needs may be satisfied by the companies offering remanufactured products. These types comprise the customers who (1) need to retain a specific product because it has a technically defined role in their current processes; (2) want to avoid the need to re-specify, re-approve or re-certify a product; (3) make low utilization of new equipment; (4) wish to continue using a product which has been discontinued by the original manufacturer; (5) want to extend the service lives of used products, whether discontinued or not; and (6) are interested in environmentally friendly products [51
]. Linder and Williander [18
] outlined challenges regarding remanufacturing, such as: considerable expertise and knowledge of the product; efficient product retrieval; suitable types of products; risk of cannibalization if the new, longer-lasting products reduce sales of the previous products; fashion changes; a financial risk for the producer if the offer is to be rented; increased operational risk; lack of supporting law, policy and regulations; and compatibility with the business models of partners.
Regarding the role of human resources in a company shift towards the circular economy, various suggestions have been made. On the basis of successful waste elimination schemes, Scott [3
] formulated general recommendations for creating teams related to team members and team size, volunteers, goals, motivation, maintaining links with organization, organizing team meetings, positive thinking, and leadership. Lacy et al.
] (p. 18) identified five capabilities of successful circular leaders (business planning and strategy, innovation and product development, in sourcing and manufacturing, sales and marketing, reverse logistics and return chains). Other researchers also emphasized the role of leadership, mostly pertaining to the appreciation of the new strategic direction, understanding its benefits and risks, and the ability to establish a common understanding in the business [53
Joustra et al.
] (p. 11) identified eight elementary skills for any circular economy project team, such as: entrepreneurial and developing, craftsmanship aimed at product/services, systems thinking and capability of identifying causal loops, future oriented and out-of-the-box, celebrating diversity, addressing insecurities, designing circular systems, products and services, and being creative, innovative and connected. Laubscher and Marinelli [22
] give some insights from the practice and emphasized the role of adequate culture adaptation and development of capabilities in a BM transformation towards CE. This can be obtained through dedicated training programs, performance and rewards schemes, personal targets and bonuses for sales managers.
Others argue that policymakers at all government levels (municipal, regional, national, and supranational) play an important role in the circular economy [3
]. There are two broad and complementary policymaking strategies to accelerate the circular economy: fixing market and regulatory failures, and stimulating market activity by, for example, setting targets, changing public procurement policy, creating collaboration platforms and providing financial or technical support to businesses [6
Parlikad, et al.
] and Scott [3
] (p. 79) argue that IT and data management systems are essential for the circular economy, because they allow to keep track of products, components and material data. This strongly supports effective reverse logistics systems, material loops (also cross-industry) and reuse of components.
Some business risks of service models (or PSS) have also been identified in the literature. They are related to the fact that (a) owning a product is preferred if the user is emotionally attached to the product or the product has an important intangible value, impacting, for instance, the owner’s social status; (b) result or function-oriented services need a good explanation and description, which may increase transaction costs; (c) the service provider must predict and control the risks, uncertainties and responsibilities related to selling a result-oriented service [11
]. Moreover, validating a circular business model always has a higher business risk than validating a corresponding traditional, linear business model [18
Regarding the impact of the circular economy, there are three main winners: economies, companies and user/consumers [3
]. CE advantages for economies are related to e.g., the impact on economic growth, material cost savings, mitigation of price volatility and supply risks, significant job growth in services, employment market resilience [4
]. Laubscher and Marinelli [22
] point that companies can gain financial and reputational value. Others argue that CE will give the companies new profit possibilities, increase competitive advantage and build resilience against several strategic challenges [4
]. Detailed advantages could concern: innovation and competitive advantage, additional revenue streams, long-term contracts, customer loyalty and feedback, multiple benefits of internal resource management, and beneficial partnerships throughout the value chain [7
]. Customer and user benefits mainly comprise of increased choice at lower cost; however, there are also some social benefits, like a contribution against climate change [4
Importantly, adaptation factors change in time and those changes also impact the evolution of business models [50
3.7. Evaluation Models
The criteria for assessing the feasibility, viability, and profitability of circular business models must be adjusted to the micro, meso and macro-level of implementation [47
]. On the micro-level Laubscher and Marinelli [22
] argue for measuring the reduced ecological footprint, direct financial value through recovery of materials and assets, and top line growth through new business models. A more extended set of key performance indicators could encompass a percentage of: revenues from repairs, reused parts, refurbished products, recycled material used product value after period X, revenue from second-hand products, times of reuse of resource, technical lifetime value of by-products, by-products used, separability of resources, toxic materials used, and products leased [11
]. Anderson and Stavileci [61
] proposed several criteria for evaluation of the business model’s validity for the circular economy, such as: turnover possibility, margins, capital intensiveness, implementation time, dependence on supplier, possible usage of recycled materials, usage of unsustainable materials, benefits from additive manufacturing, percentage of lifecycle, product oriented, and service oriented. There are also some guidelines for accounting the costs of material flow (MFCA) [62
On the macro-level, there are several measurements for three CE principles [23
]. Measurements concerning the principles of preservation and enhancing natural capital by controlling finite stocks and balancing renewable resource flow, comprise degradation-adjusted net value add (NVA) as a primary metric, and annual monetary benefit of ecosystem services, annual degradation, and overall remaining stock as secondary metrics. Measurements for the principle of optimization of resource yields by circulating products, components and materials in use at the highest utility at all times in both technical and biological cycles, encompass as a primary metric GDP-generated per unit of net virgin finite material input, and product utilization, product depreciation/lifetime, and material value retention or value of virgin materials as secondary metrics. Measurements for the principle of fostering system effectiveness by revealing and designing out negative externalities, consist of cost of land, air, water, and noise pollution, as a primary metric, and toxic substances in food systems, climate change, congestion, and health impacts as secondary metrics [23