The Big Picture…
We really need the circular economy to work. An economy that, amongst other things, reuses, shares, refurbishes and recycles goods to minimise waste and pollution. Yet, only 9% of the economy is currently circular, and trends suggest this is decreasing. At the same time, the service economy is booming.
The Circular Economy is a move from the linear economy of take-make-waste to one that:
- designs out waste and pollution
- keeps products and materials in use
- regenerates natural systems
We do that by looking to maintain/prolong, reuse/redistribute, share, refurbish/remanufacture, or recycle goods.
To make such a circular economy operate effectively we have to
- build relationships with customers and look beyond the sale
- move from value-in-exchange thinking (where manufacturing embeds value and all focus is on the sale)
- create value together (co-create value)
- co-ordinate many actors to (repeatedly) achieve value
And those aspects are exactly what service-dominant logic thinking encompasses and promotes.
But we have to be careful – a service-dominant logic economy can lead to more waste. We can easily create, for example, subscription models that encourage increased volume of throw-away goods.
Today’s world: The Linear Economy
Think of how we typically use goods today. We take raw resources, make various component parts and assemble those into goods. Then we focus all our efforts to sell those goods to customers. Our customer then uses the good until it is no longer of any use, and then throws it away. This is the Linear Economy. And is referred to as the “take-make-waste” model.
We often don’t care about the residual value of goods or trying to reuse that. This generates waste, pollution, and locks away scarce resources. Worse, usually, the taker and makers don’t have visibility, or care, how their goods are used or wasted by the users in the next step.
One thing is for sure: we can’t continue with all the waste we generate in the linear economy. Firstly, it’s not environmentally friendly. Let’s just take the following, quite astonishing, fact:
total greenhouse gas emissions from textiles production, at 1.2 billion tonnes annually, are more than those of all international flights and maritime shipping combinedA New Textiles Economy: Redesigning Fashion’s Future
Secondly, we have limited physical resources to take and too high demand for those; a demand which is only increasing.
So we need something different for tomorrow (or really today/yesterday).
Tomorrow’s (needed) world: The Circular Economy
We need to find an alternative to the linear economy. An approach where we:
- “design out waste and pollution
- keep products and materials in use
- regenerate natural systems”
And these three principles are exactly what the Ellen MacArthur Foundation uses to define the Circular Economy. You can see their interpretation in Figure 1. And we see why it is called circular. Notice that there are two streams: renewables flow management, on the left, and stock management, on the right.
I’ll concentrate on the stock management part in this article. And we can see there are four circular loops in this half of the diagram, covering:
- Maintain / Prolonging & Sharing
- Reuse / Redistribution
- Refurbish / Remanufacture
Where the intention is to keep within the inner loops before moving to the outer ones. For example, reuse is preferred over refurbishing and maintaining over reuse, etc.
So what’s the idea behind this article?
Despite the need to shift to a Circular Economy, only 9% of the world’s economy is currently seen as circular. And sadly, that trend appears to be decreasing.
Only 9% of the world economy is circular and according to the Circularity Gap Report 2019 the trend is negative“The Nordic Market for Circular Economy – Attitudes, Behaviours and Business Opportunities” SB Insights (2019)
On the other hand, we are in economies that are predominantly, and increasingly, powered by services.
To me, that feels like a disconnect. Each loop of the Circular Economy appears to be service-like.
Could it be that our in-grained focus on looking at economies with a goods-dominant mindset is holding us back? We have, after all, spent 300+ years living in a “goods/product” economy. Our whole mindset of the firm is built around making goods, selling them, and not thinking about their subsequent use.
With its evolved view that value is co-created rather than simply exchanged, service-dominant mindset pushes us to think beyond the traditional focus on making a sale. And it encourages relationship building, a focus on offerings that solve jobs to be done. As well as seeing value is co-created through a network of actors. These are all things we need in order to supercharge the circular economy.
To show this, let me take you on a journey. One that ends with viewing the Circular Economy through the lens of service-dominant logic. But which starts by looking at the Linear Economy as seen through goods-dominant logic. That is to say, how we usually see the world today.
Linear Economy and Goods-dominant logic
Goods-dominant logic is a lens onto what happens with value in our economy. Logic, in this sense, means a way of thinking and acting. It takes a linear view, where value is created, exchanged and destroyed.
A car, for example, is manufactured from parts, which are made from raw materials. We see value as being added/embedded in each of these steps. The car is more valuable than the parts, which are more valuable than the mined raw materials.
The total focus of the firms involved is on making a sale. That is to say, getting an exchange for the value they have embedded. There is very little interest, from the firms, in what happens after the sale. Although, in goods-dominant logic, we see that the (end) customer goes about destroying/using-up the value. Back to the car – the customer drives it around, destroying the embedded value.
I suggest that the embed-exchange-destroy view of value in goods-dominant logic matches nicely with the take-make-waste view of the linear economy.
Next, let’s look at how value changes if we are in a Circular Economy using the same goods-dominant logic lens.
The Circular Economy in Goods-dominant logic
Let’s try and explore what the Circular Economy might look like if we stick to a goods-dominant logic. Well, the manufacturers would still be embedding value as they manufacture. But now, rather than the consumer immediately starting to destroy value, they would be attempting to do two new things:
- Preserve and extend the original value embedded – maintaining or reusing, for example; and
- Increase the embedded value – such as through recycling.
I show this in Figure 6, where the yellow area represents preserving and extending value and the blue area the increasing of value. The intention is the waste segment (value destruction) is now reduced.
The problem with our goods-dominant view is that it only extends our thinking from take-make-waste to take-make-use/reuse-waste. There are still two independent parties – the manufacturer and consumer. The former is still seen as the value creator during manufacturing. And the later as driving use of that value after an exchange. There is limited need/benefit for manufacturers to be interested in supporting the later in their circular economy journey.
What then if we look at the circular economy through a service-dominant logic lens?
The Circular Economy through the Service-dominant Logic lens
At the heart of service-dominant logic are some key differences in how we think and act that are relevant here. These differences are in how we view:
- value is co-created. And it is (phenomenologically) determined by the beneficiary
- service – no longer inferior to goods, services enable beneficiaries to make progress in some aspect of their life
- goods – intangible objects, books, cars, furniture etc – are distribution mechanisms for service
- customers – are resources not targets and we need to think of them in the context of their own networks
These changes can be summarised as I show in Figure 7. Where the first two columns are from Vargo & Lush’s “From Goods To Service(S): Divergences And Convergences Of Logics“). And they show the managerial considerations of moving from a goods- to a service-dominant logic. To this, I’ve added a 3rd column with the implications of those shifts for the circular economy.
But this shift is an evolution in thinking, not a revolution as you’ll find in my article journey: making service-dominant logic more approachable.
Taking these differences on-board, we arrive at Figure 8.
What are we seeing in Figure 8? Well, we can look at it as two parts. First, there are a set of value proposition offerings, that have no inbuilt value on their own. And second, there is value in use driven by the beneficiary’s behaviour.
On the left, of Figure 8 there is a range of value proposition offerings. One of these is the offering from where the tangible item enters into the circular economy. The other offerings will be those to recycle, maintain, reuse, refurbish etc.
We will find that it is perhaps the original actor that decides to make a range of offerings. Or it could be a range of actors making these propositions. Perhaps the original actor decides to make all the circular economy offerings. Or it could be one or more actors per offering type. What is needed is actors to work together in a network to enable each other. And the main responsibility is on the originating actor.
For these actors, there has to be a benefit to offer their propositions. And that comes in the form of their business model. OECD’s report “Business Models For The Circular Economy: Opportunities And Challenges For Policy” helpfully identifies 5 business models common in the circular economy:
- Circular Supply – replacing traditional material inputs with renewable, bio-based, recovered ones.
- Resource Recovery – produce secondary raw materials from waste
- Product Life Extension – extending lives of existing products
- Sharing – increase utilisation of existing products and assets
- Produce Service Sytems – provision of services rather than products. Ownership remains with supplier
The Beneficiary’s Behaviours
It is the beneficiaries that decide the value in the service-dominant logic. So it is they that select the value propositions in which they wish to partake. And they that decide if enough value is co-created to ensure the survivability of the provider(s).
In an ideal world, this beneficiary driven value determination will favour collections of offerings that maximise the circular economy. There would be a preference for initial offerings that maximised value from other offerings. For example, the mobile phone manufacturer that maximised reuse, maintenance, remanufacturing. Or the fast-fashion company that alleviated the guilt of high-velocity purchasing by collecting last week’s styles and recycling.
Sometimes we need external influences. Such as deposit schemes on plastic bottles to encourage recycling.
But there is organic growth in the service market – services are eating the world. And four of the reasons align with the business models above:
- Changing notion of ownership – sharing
- Using under-utilised assets – sharing
- Differentiating products – product service systems
- Value of data – subscription models
However, we need to be careful with the last model – subscription. If that involves distributing the service using tangible goods then it needs to consider how to recycle/remanufacture to avoid increasing waste.
Sniph, for example, is a subscription perfume service. Each month an 8ml glass vial of selected scent is mailed. To minimise waste, Sniph send a pre-paid envelope in which you can return 5 empty vials. In return you get an additional filled vial.
[to be written]
On page two you can find some examples of circular economy companies and approaches.