Reinventing Towards A Circular Business Model: The Challenges

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Last week, I listened to the news about temperature records, the gulf Mexico fire, and the rise of the delta variant. Like many of us, I wonder what we can do to change. Yet, as the global population increases and the demand for raw materials expands exponentially, the supplies are decreasing, and the planet is warming us about the limits of our linear model.

For that purpose, we need to increase awareness and join our effort to disrupt the current model and move towards a “humanity model.” We all have the power to change and contribute to this transformation.

It’s wise always to remain quantitatively informed about facts and figures to reflect and reposition ourselves. For that matter, did you know that more than 1.3 billion tons of trash are globally produced every year? That’s right; such massive amounts of waste are realistically impossible to properly process or recycle.

Dr. Jeremy Wilkinson author of the British Antarctic Survey, suggests that no place in the world is immune to ubiquitous microplastics polluting the surfaces. Besides, the human population is facing immense ecological changes due to ocean plastic pollution, climate change, pandemic and geopolitical tensions.

In the current model, we must extract unsustainable quantities of natural resources to keep pace with the growing consumption because we can’t contain the waste we produce. OECD accounts for 50% of the greenhouse gas emissions to flow the materials through acquisition, transportation, processing, manufacturing, and use and disposal. We are facing a global ecological crisis. How did we get here?

Looking back in time: an overview

Most of our global economy is linearly designed; we take, make, and waste instead of keeping the loop circular. In short, we are using the wrong business model.

With the rapid industrialization of developing countries combined with the global population set to exceed 9.5 billion people by 2050, the middle class is exploding. As a result, there are millions of people who want to buy billions of stuff. But do we really need to buy more stuff?

Although it is considered a human development victory, the threat to the environment is grave. And unfortunately, the threat will remain suspended in the air unless businesses reinvent their business models to follow a new model, “circular economy”. For example, a clothing brand can lessen its environmental footprint by using non-toxic dyes and recycling cloth scraps. They must also beat the current “fast fashion” business model by incorporating new reuse, rental, and resale strategies. Besides benefiting the customers, it positively impacts the planet by cutting down the cloth waste.

However, it’s easier said than done. Multiple struggles ahead; here are some of the significant challenges that companies have to overcome when moving towards a circular economy business model.

Biggest challenges to overcome for circular business model

1.     Meeting consumer expectations

The idea of living without trash is pleasant, but all imaginations aside, it is tough for consumers to change our living habits. After years of our grandma’s traditional zero-waste model, single-use plastic products and packaging became the norm. As a result, today, the growth in usage of plastics soared up 20 times compared to that 50 years ago.

Expecting consumers to change the way they operate and the types of products they buy is far-fetched. We are used to consuming products that are ecologically harmful despite the availability of better alternatives. Therefore, the first biggest challenge is to tackle the abandonment of commonplace conveniences like plastic bottles and bags for the consumers. People tend to resist products posing even the tiniest friction or annoyance.

Besides continuously striving for self-comfort, there is also the matter of reputation and vanity. People often think, “how will others look at me, or better, think about me?” This can also be a driver of transformation, as humans tend to fit in and belong to certain tribes. The products that they buy are a strong indicator of who they are and whom they want to be associated with.

2.     Incompetent supporting regulations

Lack of supporting regulations and laws unintentionally incentivize wasteful behavior among consumers and companies. For example, the expiration date label is required by law to protect the consumer in the food and beverage sectors. However, the expiration date does not account for the difference in how food is stored. Let’s take the date label on eggs as an example. The expiration date may be labeled for pantry storage, but the eggs will last longer when refrigerated. Expiry dates do not mean that the food is no longer edible – it’s just an indicator of no longer meeting manufacturer’s quality standards when in reality, it is still safe to eat.

Fortunately, a consortium of companies has agreed to fix this lack of support by rules and regulations.

3.     Barriers within the organization

It’s difficult for not only individuals but businesses as well to restructure their model. Reinvention is always costly and risky, with resistance among managers ruling out the expected benefits as they count the advantages of the existing business model. Therefore, a complete switch to a new business model not only negates new contracts but takes time, energy, and a lot of willpower to carry through.

4.     Considering the costs

Upfront investment costs and recycled materials are more expensive in a circular business model than in linear models. In addition, there are numerous obstacles to overcome in a circular business face, requiring more than skills and resources. For example, many negative externalities tied to the traditional economy, like air pollution, remain unpriced. As a result, non-circular products end up being cheaper than their circular counterparts.

Higher labor and operational costs are other factors making circular business models expensive. More workforce is required to reuse second-hand products, their components and to recycle them. On top of it, the market for recycled material is too small that adds up to the cost. Therefore, transactional costs for circular economy businesses are high as it has to invest in finding usable plastics, collecting them, sorting them, and then recycling the materials.

5.     Risk of cannibalization

There is plenty of risk of cannibalization; that is, reduction in sales volume, sales revenue, or market share due to introducing a new product. Similar to the fashion vulnerability hindering the production of long-lasting, high-quality products, cannibalization is another factor to consider due to the transition to the circular economy.

6.     Keeping mutual benefits for all stakeholders

Another challenge to weigh is ensuring mutual benefits among all stakeholders that are necessary for collaboration. So it is because misaligned profit-sharing along the supply chain effectively hinders the circular business model adoption.

7.     Trust issues

Establishing trust, of course, is also essential when moving towards a circular economy for your organization. This is done by sharing data and product information via collaboration in the value chain. Many companies, however, are reluctant to do so.

8.     Viability issues

Many companies looking to switch to circular business models are not ready to do so because they cannot justify the investments. In addition, the prospect of insufficient profit or cost-saving makes them reluctant to leap.

9.     Lack of knowledge

Conclusively, a significant challenge for businesses is the lacking of blueprints to follow towards the reinvention of a circular business model. Although there are successful first-movers, there is still a prominent gap in the total understanding of the circular economy.

So, what’s the solution?

The above-listed barriers and challenges prevent companies, governments, and consumers from solving the trash problem. To overcome the obstacles, one cannot rely exclusively on any categories to do it all.

The most viable solution is collaboration. Collaboration is one factor that rings loud and clear in circular economy circles that make or break the economic transition.

Conclusion

Meeting the requirements of a truly circular economy is not an easy path. Companies that are fully prepared and best-intentioned run into obstacles when attempting to meet the requirements, getting positively demotivated to proceed. However, with a thorough blueprint designed and challenges addressed head-on, organizations can certainly be successful.

Do you have what it takes? What other challenges can you bring to the table?

Download free “8 Reasons to Adopt Circular Economy” In this eBook, you will get an inside overview of the circular economy principles and its outstanding benefits. 

Notes

Previous articles of the circular economy series:

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