Finnish companies make a shift to the circular economy with innovative business models

The basic idea of sustainable circular economy business models is to produce not only economic value, but also environmental and social value. In the circular economy, they key objective is to keep the value of materials and products high for as long as possible. To be able to make a shift to the circular economy, it is essential to design the products in a more intelligent way by increasing their service life and changing their role in the system.

A shift from product-focused activities towards production of services supports the transition. When the product manufacturer maintains the ownership of a product, this will, at the same time, increase the motivation to lengthen the service life of products, and make the repair, remanufacturing and increasingly efficient use of resources more important than before.

In the CloseLoop project of the Strategic Research Council of the Academy of Finland, challenges associated with the development of new business models are systematically assessed, and new circular economy business models and concepts are brainstormed for Finnish companies. These concepts are developed and tested in collaboration with companies and stakeholders, including end-users and consumers.

Towards the circular economy with collaborative intelligent approaches

Digitalisation and the Internet of Things (IoT) offer new opportunities for the development and implementation of circular economy business models. They enable the gathering of information on products in a new way. This provides the manufacturer with increased knowledge on how the product is being used, when the product needs maintenance, and when the product is nearing the end of its service life. This makes it possible to develop new services and optimise the value of the product and its materials. On the other hand, this also increases the complexity of products and thus brings challenges to the preservation of the value of materials and components.

An individual company cannot solve the challenges related to such business operations. What is needed is comprehensive understanding of the viewpoints and needs of various parties. One must also examine what kind of value the business operations create for various stakeholders and what kind of opportunities it offers for creating added value. It is also important to consider what kind of value the new business activities may reduce from different stakeholders. On the basis of such examination, the parties involved can develop a model for the optimisation of common value creation.

The question of value can also be examined at many different levels, taking into account such aspects as economic, social and environmental value. When considering the value received by the end customer, it is also essential to understand the value as a ratio between sacrifices and benefits. The circular economy creates demand for new services and, consequently, for new operators. Such services include collection of products and logistics, the secondary markets of products and platforms that enable longer service life or higher utilisation rate for products.

Concrete business cases of the circular economy

What are business activities conducted in line with the principles of the circular economy like then? For example, business strategies in line with the circular economy can be classified as follows [i]:

Circular economy business strategies

Where can one get tips for business activities in line with the principles of the sustainable and circular economy?

In May 2017, the British Standards Institute published the standard BS 8001:2017 [ii], a new standard on the circular economy. It offers guidelines for different types of organizations on how to implement the principles of circular economy in their operations. The standard consists of two parts:

  1. Information on what the circular economy is all about and why it is advisable to transfer to the circular economy and a more sustainable operating model than before.
  2. Guidelines on how to implement operations in accordance with the principles of the circular economy. This is the key part of the standard, describing the principles of the circular economy, a flexible implementation model and guidelines supporting the implementation.

The collection of circular economy business cases that may inspire Finnish operators have been collected on the Sitra website. The aim is to gather 100 examples of Finnish forerunner companies engaged in the circular economy on this site by the end of 2017. The examples have been divided in accordance with the five circular economy business models.

Concrete international business cases can also be found on the website http://www.plan-c.eu/bmix/. It brings together descriptions of sustainable business models of various types and examples on how such business models have been put to practice. The site presents eight ‘archetypes’ of sustainable business models and 100 real life business cases related to them.

New tools needed for the development of business activities

In the circular economy, business activities are more networked and systemic than before. Therefore, new tools are needed for both innovation and the development of existing business operations. The examination framework in the figure below emphasises these aspects, providing a holistic development tool for enterprises.

The transition towards business models in line with the circular economy requires examination at various levels. Changes in the business environment can be taken into account by assessing the ongoing development trends and drivers of change. Stakeholder participation in the examination work promotes generation of a shared view on the matter. At the level of business operations, the examination focuses on the key elements of the business model. The impact of operations is assessed from the viewpoints of requirements and the benefits achieved. The examination framework entails an idea of continuous assessment of business activities from the perspective of sustainability and the circular economy. Any changes need to be assessed, and the business model adjusted to the changed circumstances.

Examination framework

A systematic examination framework suited for
the development of business models [iii].

Teuvo Uusitalo VTT

Teuvo Uusitalo, Senior Scientist
Twitter: @TeuvoU

Maria Antikainen, Senior Scientist
Twitter: @MariaAntikainen

[i] Kraaijenhagen, C., van Oppen, C., Bocken, N., 2016. Circular Business. Collaborate and Circulate. Circular Collaboration.

[ii] BS 8001:2017. Framework for implementing the principles of the circular economy in organizations – Guide.

[iii] Antikainen, M., Valkokari, K., 2016. A Framework for Sustainable Circular Business Model Innovation. Technology Innovation Management Review 6.

The circular economy is a rough diamond with huge potential

Maria Antikainen VTT

The circular economy is a huge, rough diamond. It offers Finland an opportunity for economic growth and employment. We can switch to the circular economy via a series of innovation leaps. The key issue is a change in paradigm; doing things in an entirely new way rather than more efficiently.

The circular economy is a team game in which goals cannot be scored by going solo

A functioning circular economy is a complex and multi-dimensional system. The idea is to close the circle, but at ecosystem level rather than that of a single player. The circular economy is like a team game, where everyone has a certain role and the players need a keen eye for the game and great timing. This requires broad know-how and holistic management.

Examining systematic, holistic solutions helps us to see the wood for the trees. Circular economy solutions are complex wholes; goals are scored by the team, not individual players. On the other hand, if a player doesn’t hold up her end, this has an impact on the entire team’s performance. The forecasting, simulation and piloting of systematic impacts are important tools for understanding and visualising the consequences of solutions in the circular economy. Life cycle assessment is a good tool for evaluating environmental impacts. When analysing the impacts of solutions, the evaluation perspective must be broad and long, in order to identify solutions that are central in terms of their actual impact.

VTT offers expertise in various aspects of the circular economy diamond

In our publication, Policy Brief, we aim to serve companies and decision-makers by presenting the views, on the circular economy, of experts from a range of sectors. We understand that every circular economy solution has its own special characteristics and that various needs for change are highlighted. At VTT, we have presented the five issues that we consider to be central; these can be expressed in the form of questions:

  • To what extent are new technology solutions needed?
  • Do we need new business models?
  • What kind of change is needed in society’s structures?
  • What kind of collaboration development, or new partners, are needed?
  • To what extent is a breakthrough solution dependent on a certain mindset and behaviour?

circular economy en

The five examples of the circular economy we present in VTT’s Policy Brief illustrate how different perspectives are highlighted, how multi-disciplinary skills are needed to promote them, and what kinds of economic opportunities they open up. With the help of inspiring, concrete examples, we want to spur Finnish companies on to think about their own strengths and challenges with regard to circular economy solutions and to take bold steps towards the circular economy. VTT provides a wide range of expertise in all areas. We can build new circular economy solutions together with our customers.

Maria Antikainen, Senior Scientist
Twitter: @MariaAntikainen

Senior Scientist Maija Federley; Senior Principal Scientist Juha Honkatukia; Senior Scientist Päivi Kivikytö-Reponen; Research Team Leader Johanna Kohl; Senior Scientist Jutta Laine-Ylijoki; Principal Scientist Raija Lantto; Principal Scientist Tiina Pajula; Research Team Leader Anu Seisto

Theme digitalisation: How do business models change with digitalisation?

In their post to our Digitalisation blog series below, Jukka Hemilä and Anna Viljakainen consider how the business models of companies will change and what kind of competences the future business activities will require.

The previous parts of the series: Physical product or digital service?, How to navigate successfully through the digital transformation and Digital transformation calls for user-centricity and technological knowledge.

Jukka HemiläAnna Viljakainen

Digitalisation creates totally novel opportunities for business activities and even breaks traditional business ecosystems. Digitalisation is about a permanent change in the ways we act.

A classic example of the transformation brought on by digitalisation is the transfer from the film era to the digital era in photography. Camera manufacturers, film producers, and photo paper manufacturers – in other words, practically the whole value chain – were forced to renew their technologies, processes and operating methods. In order to secure the success of their business operations, they needed totally new kinds of competences. The operators had to adjust to digitalisation and seek a novel role in the value chain and clarify the idea of what will provide new value for customers and other stakeholders. It was an overall change in their business models, where technology appeared as the enabler of digitalisation.

In line with Tuomo Tuikka’s thoughts in the first part of our blog series, digitalisation is a driver in the transition towards a service business. The transition to services is taking place because they increase the competitiveness of companies and enhance their capability to survive the impacts of economic trends. The economic growth in Finland is increasingly reliant on services.

However, a service business differs quite fundamentally from the traditional production industry that we are used to. For that reason, company strategies, processes, sales practices and corporate cultures need to be developed further. We need to change the operating method by which we create services that produce added value. This means that companies must understand what digitalisation means in their business operations in particular. The higher the added value of the services we are providing, the bigger the role of technology in the production and validation of added value. As an example, we could mention the elevator company Kone, which is increasingly transferring from maintenance and development services to People Flow building management services, aimed at producing better experiences to users of buildings. A change like this requires a digitalisation strategy.

As IoT and the industrial internet are on everybody’s lips, broadly speaking, we are living in the midst of a transfer to a digital era. The Finnish Government Programme has set a goal to conduct a study on how Finland could turn digitalisation into growth. With it, the State has promised to create a growth environment for digital business operations, for example, by changing regulations and opening data sources. The role of companies in this transition is envisioned to be the development of new technologies and the innovation of business models, as seen in the Kone example mentioned above.

Time to renew business models?

Gary Hamel, one of the world’s most renowned business thinkers, has stated that competition no longer takes place between different products, but between different business models. Companies should systematically launch the development of their own digitalisation and the business model transformation it requires.

Tuomo Tuikka already pointed out that the creation of customer added value and greater competitiveness are key priorities of digitalisation from a business perspective. With a view to business renewal, we need to understand the new kind of customer value that digitalisation enables and creates.

Our CUSTOR research project has focused on the problems of customer value creation and strategic business development. Our guidebook Arvosta! uses examples to highlight our views on value creation and understanding it (Hemilä et al. 2016). Through digitalisation we can create new operative, financial and emotional value. In addition to enhancing production efficiency, digitalisation also enables new business opportunities and a total reform of business models.

Business model renewal begins with redefining customer value and analysing the opportunities offered by digitalisation. Recognising the opportunities offered by digitalisation is a major challenge, as we pointed out in our blog post entitled How to navigate successfully through the digital transformation.

Digitalisation is a major opportunity and strategic investment that often requires renewal of the business strategy. Strategy creates the direction and framework for digitalisation, following the realisation and understanding of future customer value and the opportunities offered by digitalisation. Business renewal must be managed by someone and its implementation requires different competences.

Courage to combine competences and technologies

The report “Suomi –Teollisen Internetin Piilaakso” listed a lack of vision and a common narrative, as well as the rigidity of the labour market and work communities as Finland’s weaknesses (Ailisto et al. 2015). Development and application of digitalisation requires innovation activity that combines novel competences and new ways of managing organisations.

Internationally, major corporations invest in organisational diversity, or in combining different competences (e.g. Intel, Microsoft). In successful business operations, one must invest in one’s organisation’s diversity and versatile competences and communication skills (Hemilä et al. 2016). In other words, success does not necessarily require development of a new technology, but incorporating technologies and competences into business operations in new ways.

Companies must now seize the challenges and opportunities of digitalisation and create a business model based on digitalisation. We will be able to find the business concept for future success by combining competences and technologies in new and bold ways. We at VTT are pleased to assist you with the renewal of your business operations.

Jukka Hemilä, Senior Scientist

Anna Viljakainen, Research Scientist

References:

Ailisto, Heikki (ed.); Mäntylä, Martti (ed.); Seppälä, Timo (ed.); Collin, Jari; Halén, Marco; Juhanko, Jari; Jurvansuu, Marko; Koivisto, Raija; Kortelainen, Helena; Simons, Magnus; Tuominen, Anu; Uusitalo, Teuvo 2015. Suomi – Teollisen internetin piilaakso. (In Finnish: “Finland – the Silicon Valley of the industrial Internet”.) Government’s analysis, assessment and research activities series of publications 4/2015. Government’s analysis, assessment and research activities. 32 + 4 p. ISBN 978-952-287-174-9.

Hemilä, Jukka; Kallionpää, Erika; Lanne, Marinka; Murtonen, Mervi; Rantala, Jarkko; Ala-Maakala, Mariikka. 2016. Arvosta! – Kuinka asiakasarvoa vaalitaan? (In Finnish: “Respect! How to foster customer value?”) VTT & Tampere University of Technology (TUT). 55 p.