Circular economy principles have been around for centuries, but it is not until recently that circular business models have gained increased appeal in the face of rapid technological development and the need to be more customer-centric. Technology, customer-centricity and sustainability are the key drivers that support companies to become circular and increase their competitiveness.
For example, the Finnish firm Tamturbo offers compressed air as a service for industrial companies. This gives industrial companies full ownership of the machines and provides incentives for maximising product life cycles through repair, reprocessing and upgrading. On the other hand, customers only pay for what they use – in this case, compressed air – and do not have to worry about initial investments or maintenance.
Circular business models can be applied across the entire value chain. However, the biggest value potential is typically achieved during the product usage phase, requiring increased forward integration of manufacturing companies.
Leading companies are focusing on customer outcomes and redefining their value chains to enable more efficient delivery. A leading global example of this development is Michelin’s tyre-as-a-service leasing programme that allows customers to lease tyres against a pay-per-mile fee. The service allows Michelin to establish the necessary control to reintroduce tyres returned at the end of the leasing period while reducing the risk associated with replacement for customers. The company also offers sensor-based data analytics for predictive maintenance and fuel optimisation as well as other services like insurance.
Another great example is Volvo’s service agreements which guarantee the best possible uptime for cars, buses or trucks against a monthly fee. The Volvo Gold Contract includes a 100% uptime promise, remote diagnostics and preventive maintenance of the trucks, and covers all repairs. Volvo’s focus is next on the future business models that will change their position from being a truck company to becoming a mobility service provider with autonomous trucks and new delivery models.
Circular economy business takes over Finnish manufacturing industry
Companies within Finland’s manufacturing industry are strongly committed to the circular economy and recognise its connection with growth and profitability, but allied to that is the increasing maturity of the supporting ecosystem. There is a recognition of the urgent need to save the planet as well as the understanding that a successful transition towards a circular economy is critical for industrial innovation and sustainable growth.
For example, Konecranes’ Lifecycle Care programme aims to minimise the life-cycle costs of industrial equipment by maximising productivity uptime while minimising downtime. The service includes modernisation and consultation services in addition to preventive and corrective maintenance of the equipment. This all prolongs the industrial equipment’s life cycles.
A successful transformation to circular business requires a considerable shift in capabilities, mindset and collaboration because manufacturing companies will have to adapt their products and solution design and continuously engage with their customers and ecosystem partners. Collaboration between traditional and new participants in the ecosystem will be required to close the loops efficiently.
Wärtsilä has applied modular architecture in engine design to enable increased commonality and backward compatibility of parts. This approach leads to reduced product development costs, a faster time to market, reduced maintenance time and costs, and higher reusability of materials and components.
The Finnish furniture manufacturer Piiroinen is exploring the possibility of offering complete meeting rooms as a service, with high-end designer furniture and other equipment tailored to customer needs. To deliver the solution, Piiroinen has partnered with three other companies and is currently piloting the solution with a hotel chain. The solution helps the customers avoid large investments without compromising the quality of their meeting environment. At the same time, the solution facilitates upgrading and reusing furniture, extending the life cycles of the products. Overall, the solution brings Piiroinen closer to its customers, and enables the company to deliver on circular economy principles.
The rapid development of digital, physical and biological technologies provides levers for circularity.
The digital reinvention of industry delivers tangible benefits and enables the move towards the circular economy in all industries. New tech-driven circular business models like sharing platforms, pay per use and predictive maintenance bring several new viable revenue streams.
Technology, digitisation and circularity help companies to meet customer expectations better, deliver customer outcomes and achieve new levels of efficiency that improve the use of resources and mitigate the risk from regulatory, investor and societal pressures. eRent offers a digital platform for companies where machines, devices and other goods and can be shared and tracked. The company aims to improve the usage rate of equipment and its main clients are equipment rental agencies, construction firms and other industrial companies from all different sectors.
Another example is AirFaas’s factory-as-a-service platform which is used to search globally for factories with capacity and to match this capacity with manufacturing needs. It’s an ecosystem for a new era and combines several automated platforms for RFQ, a purchase transaction platform, a logistics platform, financing and an insurance platform. AirFaas allows customers to be manufacturers without owning a factory. After sourcing available factory space across the world, the automated ecosystem takes care of location, planning, logistics, distribution, budgeting and financing the products. The solutions run administration with automated sales, purchase and financial routines.
Business intelligence derived from the IoT, sensors and analytics to improve a product’s lifetime productivity can also increase value by enabling high lifetime revenues and increased profit margins.
Sisu Axles is exploring opportunities in predictive maintenance to help its customers in their continuous efforts to increase productivity and availability. Typically, Sisu Axles’ customers are carrying out preventive maintenance based on a predefined maintenance regime. With predictive maintenance, operators can call vehicles in for service only on a need-to-service basis, reducing unnecessary maintenance and allowing the vehicle to stay in operation. Furthermore, the operators can receive early warning messages alerting them to any imminent component problems, preventing potential catastrophic failures. As a result, vehicles are available more often and can be kept in use longer.
New tools guide companies to the next era of sustainable business
The above examples of companies are just snapshots of the possibilities of circular business models with digital solutions. Companies should start this journey of change by defining a vision of the circular economy and a goal-directed description of achievements for the medium- and long-term future: where and how high they want to go and what they want to achieve. Leading circular economy companies already have circularity embedded in their visions and operating models rather than merely adapting to specific business models.
Digitisation and new regulatory pressures that promote sustainable societies are nowadays emerging rapidly in the markets and make the timing right to drive awareness and circular initiatives, not only in Finland but across all the Nordic countries.
Last year, Sitra and Technology Industries of Finland developed the Circular Economy Playbook with Accenture and tested it with 50 Finnish companies. The playbook and supporting tools provide an in-depth understanding of how to achieve circular advantage. You can use the playbook to define your company’s vision and strategy and find the best circular business models in your business ecosystem. With the help of the playbook, you can find the missing link, a measurable business case, that turns inefficiencies in current linear value chains and new circular opportunities into economic value.
Circular business models redefine business ecosystems, which means that companies cannot manage to go circular by themselves.
They need their business ecosystem partners and enablers to change their business models too. Companies also need to identify and envisage their present and future role in their ecosystem.
In order to do this and go further, Sitra and Nordic Innovation have initiated a programme of circular business models in the Nordic manufacturing industry. The objective is to develop collaborative pilots across industry ecosystems to encourage a successful transition to a circular economy, which is critical for innovation and continued economic growth.
The project aims to work with ecosystems within four sectors to contribute to changing them to a circular value cycle and implementing the use of circular business models. The sectors are energy, transport, maritime (shipping), and machinery and equipment. All are quite large sectors with an environmental footprint in the Nordic countries, but all feature different levels of maturity when it comes to circular activities. Accenture is the implementing partner and will run all workshops/bootcamps with the companies.
This programme has an important role to play in increasing the pace of the systemic change required to enable circularity – to develop ecosystems and to initiate collaboration and new solutions with innovative business models. The project is based on the playbook mentioned above.