Business models for a circular economy
Amongst all of the environmental progress, action and general good work happening around the circular economy I have a slight concern business models are starting to be packaged and prescribed like commodities. Ready mades, which are chosen rather than designed. It means that companies could be missing and opportunity, as well as taking a risk.
We know that the dominant take make dispose model is a fallacy. It needs to change. In a circular economy, where one companies output finds usefulness as another companies resource, business models are a key part of the puzzle that controls material flows and takes concept of waste out of the equation.
Currently there is a lot of good research being done to promote awareness of options for circular economy business models. However it is not enough for companies, who want to joint the circular economy, to simply choose a business model like choosing a brand of detergent solution. Instead companies need to understand the ecology of circumstances and aspects that make their business and its needs unique. They then use tools that enable them to construct a model that is fit for the purpose of their company.
I am fairly sure that many of the people researching and publishing the different business models that are out there are aware of the need to treat each business as unique. I’m sure there is an understanding, one size model does not fit all. This is just a phase that we need to go through in promoting the circular economy. This post is not criticism of the good work that is being done. Its is instead an observation that we need to move to the next phase and equip business with the tools (like the Circular Design Canvas, our iteration of the Business Model Canvas) and understanding to do something actionable and fit for purpose.
We need a service based approach, but that doesn’t always mean leasing
One of the most encouraging signs from business models is the desire for leasing and service models. However there is a general notion in the circular economy that leasing is a panacea. Its not. In many cases its either not the right time due to legislation or users or it just not the right thing to do because of the nature of the product. Nevertheless there are obviously examples like Kingfishers’ Project Box, where power tools might be used for only 12 minuets over their life, which means leasing makes complete sense. In this scenario the user theoretically pays less per use for better quality tools and the company is able to increase profit margins, sell more consumables, get ahead of the competition and retain material value. But in some cases leasing does have draw backs and there are excellent alternative model examples like CAT’s remanufacturing processes, which are based on a buy back option that we could learn from.
What is positive about the attention on leasing; it is really the symptom of a shift in mindsets. The attention is moving to service system based solutions, rather than a product focused solutions. This is what we need. There is no such thing as a sustainable product, this is because a product is a state within a system and a state is not sustainable. By definition, only the system can be sustainable.
By moving to a service mindset we are able to acknowledge the whole system in a joined up way, not just the bit where we use, or worse choose, which product we want. This is why I moved my career from product design to service design. But despite leasing being the archetypal circular economy service (you don’t own the product, you hire it as a service), when you look at the unique ecology and assets of each business, in many cases there are other models more fit for purpose than leasing. In many cases even though a product is bought and sold, the business can still develop a service orientated mindset by realising value in the whole system.
A good example of this is the project We All Design did for Treebox Ltd.
When designing a business model for Treebox’s domestic customers we assumed initially that leasing would be a good solution. During research we found that people wanted to own rather than lease their green walls in much the same they wanted to own their property rather than rent. It was seen as bad value for money. We also hypothesised that ownership would encourage people to take care of their green walls more, extending the product life. Our solution was extending Treebox’s current services for maintenance and guarantee and then offering a buy back and uninstallation service at the end of life, with a discount on the new installation. This still creates an incentive for Treebox to design for disassembly and even though the owner takes the risks associated with ownership, by any other name this is a service relationship.
Why are service design different to product design?
How do we start tackling the circular economy with service based solutions? As I have already discussed we need to move towards to treating each company as unique. The second part of changing to a service mindset is that service development is a very different animal to product development. Since the industrial revolution products have been designed, with the dimensions and engineering processes specified by designers. The manufacturing process is organised with division of labour for efficiency and products are churned out in 100,000’s or more identical products. This paradigm has left a legacy in the way that our companies are structured, not to mention the way that they do business with a linear model or how we measure success more with quantity than quality.
However this is not an effective way to develop and deliver a service system, where all of the elements have a relationship. Services are variable by their nature, they can not be identically manufactured, they exist over time and can not be stored in a cupboard and they are delivered and supported by staff and are often co-produced with the user.
Effective services are designed to work across silos to ensure they create a joined up positive user experience. When thinking about implementation, they are designed to build resilience and adaptability into the delivery and evolution of services so they can offer a long term solution. They are designed with people (including staff), not just for them, because when people deliver services they are more likely to be able to do a good job if they are included in the process.
In order to move to the next steps in a circular economy and make more actions we need to start looking at how to design the intangible. Rather than giving people generic business model options we need to focus on giving people the tools to tackle problems specific to their business models. We also need to move towards a service mindset understanding integrated product service systems that don’t isolate product and service development.
Blog by Rob Maslin, Director of We All Design. This blog post was also featured on the KTN’s website