Patrick Moloney
December 20, 2023
Business model vs. business case. A circular economy conundrum
In the complex circular economy landscape, the business case and business model are not mutually exclusive but interconnected elements of a successful transition. While the business model guides operational changes, the business case ensures a robust foundation by articulating the economic rationale and value proposition. Unifying these two elements is essential for private industries navigating the circular economy landscape.
As the global business landscape pivots toward sustainability, adopting circular economy principles has become increasingly imperative. Within this context, distinguishing between the business case and the business model is essential for organisations striving to embrace circular business practices.
Such a differentiation may seem obvious – but it is not. The circular business model versus circular business case can be somewhat confusing, with the emphasis being placed upon circular business models and not enough emphasis on the business case. Indeed, business models themselves need a business case! The emphasis being placed upon circular business models in the overall circular narrative can be quite narrow and thus alienating. A good example of this is could a product offered as a service such as rented office furniture and IT equipment, and if a particular enterprise does not fit that mould then it may feel it cannot contribute to the circular transition.
This article explores the nuanced differences between a business case and a business model within the circular economy context, emphasising the importance of focusing on the overall business case for sustainable, resilient, and profitable outcomes.
In the circular economy context, a business model outlines how a company intends to create, deliver, capture, and retain value while minimising waste and maximising resource efficiency. A circular business model fundamentally departs from the linear "take, make, dispose" model, embracing strategies such as product-as-a-service and extended product life. In a circular business model, companies may shift from selling products outright to offering them as services. This fosters a focus on product longevity, repairability, and upgradability, aligning with the principles and design practices of a circular economy.
Common among all circular business models is an emphasis on retaining control over the flow of materials and products, generating profit from them continuously over time and ensuring that such profit is derived from continuous improvements in the intrinsic quality of goods and enhanced after-sale services.
With respect to remanufacturing and closed-loop systems, for example, circular business models often incorporate practices like remanufacturing, where products are disassembled, repaired, and brought back into the market. Closed-loop systems aim to minimise waste by ensuring that materials are continually recycled or reused, promoting a regenerative approach.
The circular business model, therefore, acts as a roadmap for operational change, guiding companies toward adopting practices that align with circular economy principles.
“The circular business model, therefore, acts as a roadmap for operational change, guiding companies toward adopting practices that align with circular economy principles.”
While the business model focuses, to some extent, on the 'how' of transitioning to a circular economy, the business case delves into the 'why' by providing a comprehensive rationale for such a transition. The business case evaluates the financial, environmental, and social implications of embracing circular practices.
A crucial business case component, for example, involves a meticulous cost-benefit analysis. It considers the financial investments required for the transition, including technology upgrades, training programs and process redesign, juxtaposed with the potential long-term benefits of reduced waste disposal costs, increased operational efficiency and enhanced brand reputation.
The business case, furthermore, identifies potential risks associated with the circular transition, whether they be regulatory compliance challenges, market uncertainties or disruptions in the supply chain. Moreover, it outlines strategies for mitigating these risks, ensuring a smoother and more resilient transition.
The business case also considers the expectations and concerns of various stakeholders, from consumers and investors to local communities. Addressing these considerations is vital for building trust and garnering support for the circular transition.
While both the business case and business model contribute to the circular transition, they serve different purposes and address distinct aspects of the transition. The business model focuses on the specific mechanisms a company employs to generate and capture value circularly. It provides a detailed operational and strategic framework, answering questions about product design, material sourcing, and end-of-life processes.
In contrast, the business case encompasses a broader spectrum. It includes financial projections, risk assessments and a holistic evaluation of the business's sustainability performance. It considers the interplay of economic, environmental, and social factors, providing a more comprehensive view.
The business model primarily provides an internal perspective, guiding how a company organises its resources and conducts its operations to create circular value. It is focused on the company's internal dynamics and processes.
In contrast, the business case takes an external view, considering the implications of circular practices for stakeholders, investors, and the wider community. It is concerned with the broader impact and perceptions beyond the company's internal operations.
The emphasis on the business model in circular economy discussions is understandable given its role in operationalizing circular practices. However, this emphasis sometimes overshadows the foundational importance of the business case. Several reasons contribute to this apparent paradox.
The business model is often more visible and tangible. It provides a clear framework for the day-to-day operations and changes that stakeholders can observe. In contrast, the business case, with its comprehensive evaluation, is sometimes perceived as abstract and intangible.
Furthermore, companies find it expedient to focus on the operational aspects outlined in the business model. Transitioning to circular practices often involves tangible changes in product design, supply chain processes and customer interactions. The business model serves as a practical guide for enacting these changes.
Circular business models often require innovative approaches and adaptation of existing processes. The emphasis on the business model aligns with the need for innovation and operational restructuring. Companies can showcase their commitment to circularity through tangible changes in their operations.
However, acknowledging the primacy of the business case is crucial for the following reasons:
- Comprehensive rationale: The business case provides a comprehensive rationale for the circular transition. It goes beyond operational changes, considering financial viability, risk management, and stakeholder engagement. This holistic view is essential for sustained success.
- Strategic decision-making: The business case facilitates strategic decision-making by aligning circular practices with long-term organizational goals. It ensures that the transition is not merely a reactive response to market trends but a strategic move that creates lasting value.
- Risk mitigation and adaptability: The business case's risk assessment and mitigation strategies contribute to the adaptability of the circular transition. Understanding potential risks incorporating foresight through anticipatory thinking and having a robust strategy for addressing them ensures the resilience of circular initiatives.
- Complexity and innovation: Circular business models often require innovative approaches and technologies. The business case navigates the complexity by providing a roadmap for phased implementation. It outlines the potential return on investment, showcasing how innovation can drive both sustainability and profitability.
The business case serves as a dynamic tool for continuous improvement. As markets, technologies, and regulations evolve, organisations can revisit and refine their business case to ensure ongoing alignment with circular economy goals. This adaptability is crucial for remaining at the forefront of circular practices.
Tracking key performance indicators outlined in the business case allows organisations to measure the impact of their circular initiatives. This data-driven approach not only reinforces the business case but also provides evidence of success. Measuring impact is essential for demonstrating the effectiveness of circular practices to stakeholders and investors.
The business case enables organisations to adapt to changing circumstances. Whether facing economic shifts, regulatory changes, or emerging technologies, a well-constructed business case allows for agility in navigating the circular landscape. It ensures that circular initiatives remain relevant and effective over time.
The synergistic integration of the business case and business model is paramount for a successful transition. In the complex circular economy landscape, the business case and business model are not mutually exclusive but interconnected elements of a successful transition. While the business model guides operational changes, the business case ensures a robust foundation by articulating the economic rationale and value proposition. Unifying these two elements is essential for private industries navigating the circular economy landscape.
In conclusion, the synergistic integration of the business case and business model is paramount for successfully transitioning to a circular future. The business case provides the strategic underpinning, aligning financial goals with sustainability objectives and addressing key stakeholders' concerns. It communicates the compelling reasons for embracing circular practices, emphasising long-term benefits, risk mitigation, and competitive advantage.
Simultaneously, the business model operationalises these strategic insights, driving day-to-day activities towards circularity. It encompasses product design, supply chain restructuring, waste management and customer engagement, translating the theoretical advantages outlined in the business case into tangible and measurable actions.
The interconnectedness of the business case and business model is evident in their shared commitment to sustainability, resilience, and adaptability. Enterprises that successfully navigate this integration are better positioned to thrive in the circular economy, seizing opportunities for innovation, reducing environmental impact and enhancing brand reputation.
As we move towards a circular future, enterprises should view the business case and business model as complementary components of a holistic strategy. By unifying these elements, companies not only contribute to a more sustainable and resilient global economy but also position themselves as leaders in a market increasingly prioritising environmental responsibility.
Want to know more?
Patrick Moloney
Director, Strategic Sustainability Consulting
+45 51 61 66 46