A recent blog by Jenny Ekelund highlights the importance of partnerships and the critical role they can play in shifting business models and innovating for good. She quotes Justin Adams, The Nature Conservancy's new Managing Director for Global Lands in the UK and former BP renewables executive, who had this insight from his time at the oil giant:

"I…learned how hard it is for any organization to innovate away from its core competence. There were all sorts of forces that constantly brought BP back to its core purpose of extracting fossil energy as efficiently and responsibly as it can."

​This quote really struck a chord with me.  If we look further at BP as an example, their inability to change is really no different to, say, Kodak (who invented the digital camera!) or Blockbuster (whose CEO declared that Netflix wasn't on its “competitive radar” as late as 2008) both of which have now gone bankrupt in the face of digital competition.  It is fundamentally about an inability to innovate the business model. For ‘digital’ you can easily read ‘renewables’ in BP’s case.

So why do so many established companies find it so difficult to evolve?  Looking at Kodak’s inability to adapt as an example, we can see many of the issues that are often at play. For example, one of the big problems was that it made 80% gross margins on photo film.  As a result, every innovation project, especially the digital ones, had far too high a hurdle to overcome to be taken forward.  Kodak had invested a lot in this ‘Razor and Blades’ model and this led to the board’s blinkers and unwillingness to cannibalise their core business. It is not that they didn’t see the digital revolution coming – they just couldn't make it work within their culture and corporate world-view.

I would suggest that some, if not all of the following things were therefore at play at Kodak:

• (lack of) senior management buy-in to its innovation programme
• short-term targets driven by shareholder demands and staff compensation structures
• an unwillingness or inability to challenge company / industry assumptions
• an unwillingness to cannibalise existing markets
• asset and capabilities / skills gaps
• cultural barriers
• not understanding the customer need well enough
• lack of foresight and plausible future scenarios

Managers would do well to be aware of the list above and make them a central part of innovation focus, decision making and wider strategic planning. Some of them, such as short term focus, are fundamental to the whole strategy and need to be addressed head on, taking all stakeholders, including shareholders, on a journey to longer term returns – Paul Polman is setting a great example at Unilever in how to do this.

Changing the culture and willingness to challenge the status quo won’t happen over-night.  But it needs to be a priority for senior managers to address these barriers head on. There is a ‘green’ and circular economy revolution happening in every industry and those that don’t, or worse, are unable to embrace it because of some of the straitjackets listed here, might just be the next case study of a business that failed to evolve its business model.

by Jesper Ekelund

Last week I had the pleasure of attending a talk on the Circular Economy by Jamie Butterworth (CEO of the Ellen MacArthur Foundation) and Peter Lacy (MD Strategy & Sustainability, Accenture APAC). The talks are part of a series of seminars organised by Oxford University's Smith School of Enterprise and the Environment to explore how we meet future sustainability challenges. Whilst it was very intellectually stimulating, the key for me was the practical insights and case studies on how we can re-frame innovation and growth challenges.

Many academics and practitioners alike have for many years been looking at how we can sustain our economic wellbeing without depleting our resources.  Some, like Tim Jackson, have suggested we can have ‘prosperity without growth’, or slow down growth significantly, but I don’t buy this – and nor does Peter Lacy, who said that this is simply not a conversation you can have in Asia (the area he covers) where billions of people want to lift themselves out of poverty. 

Instead, we need circular economy thinking (as opposed to our current ‘take, make, dispose economy’). Jamie summarises the circular economy as “a framework for an industrial economy that is restorative by intent. At an individual business level this provides the opportunity for businesses to begin to decouple economic growth from resource constraints and drives innovation and value creation”.  The short, eloquent clip by Dame Ellen MacArthur below also summarises the concept really well using her sailing experience as an analogy.

Peter outlined five business models for circular economy thinking and they make great lenses through which to innovate.  They’re not all new, but are very compelling. 

Products to services
“Every product is a service waiting to happen”. To my mind, this drives much of the rest of the circular economy thinking. The key is to get to the heart of the customer value proposition and look at how we can reframe it.  Are we selling cars or mobility? Gas or a warm house? Light bulbs or light?  For example, Philips has started selling lumens of light to municipalities for their street lighting, thus retaining ownership of the assets and reusing the resources at the end of the life-cycle.

More radically, how might you make shoes a service? Timberland have been trialling exactly this with the ‘Earthkeeper’ shoe for kids.  Kids of a certain age are notorious for going through many pairs of shoes a year, so instead of buying, say four pairs a year for $50 a go, Timberland will sell you the right to a shoe for your child for $100. Timberland retain ownership of the shoes and recovers many of the materials at the end of the life-cycle. It also has the great benefit of ‘closing the customer loop’ as customers are not exposed to the marketing mix and competitor products as they would every time they go back to a store to buy new shoes.

Sharing economy
We have talked about this trend on our blog before, but there is much scope for it to grow.  How can you use (digital) technology and social media to create ‘clearing houses’ to create a sharing effect, ultimately leading to a radical shift in heavy resource use? Great and prominent examples include Airbnb, ZipCar and Uber, highlighting how the sharing economy can drive growth with limited resource use; indeed, Airbnb now has a market cap to rival all major hotel groups.

Circular supplies
Looking at the supply chain and asking how we can make our inputs more circular, be that through R&D, supplier or even competitor collaboration. An obvious example is renewable energy in the manufacturing process and a more high tech one is around ‘green chemistry’ as demonstrated by Dutch chemical company DSM, who have developed some bio based substitutes designed closed loop from the start.

Resource recovery
Driven by service vs. product thinking, how do we design for disassembly and resource recovery from the start and ensure we maintain ownership of the raw materials? Much like Interface in the US, Dutch carpet supplier Desso are also pioneers in the sustainability field: they rent out carpets by the tile, replacing just the ones that are spent and reusing the materials for new carpet. This allows for lower costs for customers, predictable input costs, increased profits and radically reduces resource use. 

Product life extension
Linked to the above, how do we create products to maximise their life-cycle from the start? How do we design for remanufacture and refurbishment from the outset? For example, BMW now designs parts which in some cases up to 80% of the part can be refurbished and re-used – and put back into the market with the same warranty levels.

According to Peter, over 50% of 1000 global CEOs interviewed as part of a UN study, said they are introducing circular economy initiatives in the coming years.  Whilst it is early days, it is clearly moving from being a niche concept to a more mainstream reality with huge potential for innovators.

by Jesper Ekelund