Management
of Innovation
& Technology

Circularity and business ecosystems

— Ecosystem analysis for circular business models

The circular economy holds the promise of a systematic approach to delivering economic, social, and environmental benefits. But moving to more circular operations requires close collaboration with existing and new ecosystem partners. Thus, the readiness of business ecosystems to accept circular business models is a deciding factor in commercial success and advancing towards greater circularity. 

We are all aware of the need for greater sustainability and the need to prevent global-warming effects from becoming irreversible. Thinking, planning, doing, and acting in a sustainable and circular manner must become the prevailing philosophy for individuals and for companies from global corporations to small and medium enterprises (SMEs) in sparsely populated areas.  Everyone must share responsibility and should be supported in order to contribute to a sustainable world now and in the future. In particular, the food industry can make substantial gains from effective resource utilization and optimization throughout its value-chain activities. Currently, however, we are witnessing too little happening beyond pilot projects and local initiatives. 

Circular Economy

In July 2020, the Swedish government published a national strategy on moving towards a circular economy to increase resource efficiency and decrease climate and environmental impacts. According to the Ellen MacArthur Foundation, a circular economy is a systematic approach to economic development design that benefits business, society, and the environment. In comparison to the ‘take-make-waste’ linear economy, a circular economy is regenerative by design and aims to gradually decouple growth from the consumption of finite resources. The goal of the circular economy is to eliminate resource waste by providing various opportunities and solutions to keep materials and products in use for as long as possible. 

To enhance sustainability, all steps towards greater circularity are important. Some companies have already shifted their entire business model towards circularity. Other companies are attempting to change some aspects of their business models or add new business models to their operations. For example, food companies could change their entire production process to circularity or add processes to make resources from side streams available for human consumption. In most cases, this shift requires close collaboration with interdependent partners in a business ecosystem (Reim et al., 2019). The evolution of these business ecosystems is crucial for circular success, but they are challenging to establish and to operate.  

Business ecosystems for circularity

For the most part, research literature has studied large companies to exemplify circularity initiatives. However, to achieve major circular benefits, it is important to consider close cooperation between large, small, and medium-sized enterprises (SMEs) as well as other supporting actors in an ecosystem. 

Ecosystems can be defined as the alignment structure of a multilateral set of partners that need to interact for a focal value proposition to materialize. In such ecosystems, partners may have different roles based principally on their aspirations. The roles can usually be divided into leaders and followers. No role is better than the other; both are equally indispensable. Leaders align partners and secure the competitiveness of the ecosystem. Naturally, followers act in accordance with a leader’s plan but, crucially for future success, they complement the initiatives by supplying the products and services. The leader must facilitate conditions that strengthen the willingness of the follower to continue collaboration. 

The literature on business ecosystems demonstrates the importance of supportive ecosystems for innovation and the development of new businesses (Parida et al., 2019). However, ecosystems evolve over time, and new business models require the simultaneous development of an ecosystem. During the emerging phase of an ecosystem, there is still much room for innovation, but success is rather tenuous. Established ecosystems are characterized by stability in terms of the established partnerships and the prevailing economic conditions. Moving to a circular economy requires, in most cases, the establishment of new ecosystems to better utilize resource streams. 

Business ecosystem analysis framework – Exploiting circular business model opportunities in the food industry

The food industry has significant potential to improve its circularity through innovation and the establishment of new ecosystems. Greater circularity in this specific industry can accomplish several of the global sustainable goals, such as Goal 2 zero hunger, Goal 12 responsible consumption and production, and Goal 13 climate action.  Nevertheless, strict regulations, perishable raw materials, and the small size of many actors are major impediments. The greatest potential lies in finding new solutions to handle waste streams in a profitable and sustainable way. Currently, waste is seen as a problem first and foremost, and not as a source of value. This misconception can be overcome by analysing and building ecosystems to facilitate valorisation of side/waste streams. 

Our framework (see Figure 1) allows individual companies to assess their business ecosystems and, as a first step towards exploiting circular business model opportunities, undertake an ecosystem analysis. This ecosystem analysis includes an ecosystem partner analysis (leader vs. follower) and an ecosystem maturity analysis (emerging vs. established ecosystem). From this analysis, conclusions can be drawn on the potential for exploiting circular business model opportunities. For each of the four business-model types, specific activities are identified that should be pursued in moving sequentially towards sustainability and successful commercialization. This framework is based on interviews with 30 small and medium-sized enterprises in the food processing industry located in sparsely populated areas of Finland, Sweden, Norway, and Ireland. Below, we illustrate one case from our data collection for each of the four circular business model opportunities identified in the business ecosystem framework and pinpoint activities that can usefully be pursued in each of the stages. 

The “explorer” business model: A brewery provides spent grain – one of their side streams – to a bakery that uses it for making bread. Thus, the brewery explores opportunities to valorise the side stream in another industry even though it did not engage in any value-adding activities and is dependent on the bakery’s demand for spent grain. To increase circularity, the brewery should further engage in business-model development to capture value from the waste in the future and to develop their ecosystem so that larger quantities of the side streams can be utilized. 

The “adventurer” business model: A fishery company with well-established fish products on the market has invested in technology to utilize more of the edible fish parts for human consumption. This process works for atypical fish such as bream and the residuals from fish fileting. The company needs to work actively to align all necessary actors such as suppliers and distributors in the ecosystem and to develop the market for sustainable products. 

The “sustainable enabler” business model: A potato processing company buys locally harvested potatoes with a certain percentage of soil. Potato processing results in the typical waste of soil, wastewater, and peeled potato skin. The company is not interested in processing this waste further, but it supports its established ecosystems in utilizing the waste in as circular a manner as possible. The future holds opportunities for the firm itself to add processes to valorise the waste. Or, at the very least, it could attempt to capture some value from the waste and not merely perceive it as a problem to be off-loaded.  

The “circular hero” business model: A brewery company in collaboration with a data centre has a pilot project to harvest meal worm. These worms can be used as feed in local chicken farms instead of imported soy. The brewery’s side stream, spent grain, has a wet texture and is used as feed for the meal worms. The heat generated from the data centre provides good conditions for harvesting the worms. During their growth phase, the meal worms consume most of the spent grain and the water. The residuals are a particularly good “dried” fertiliser that is much easier to handle than the wet spent grain. In an established ecosystem with collaborating and collocated actors, this process is scalable, and it is a prime example of how to facilitate greater circularity and sustainability in a high demand, growth industry.

Fig. 1: Ecosystem analysis framework

Conclusion

It is important to enhance both current and future potential to shift towards a circular economy if more sustainable development goals are to be met. Consequently, large and small companies must rethink existing business models and rise to the challenge of building new circular business models.  An analysis of roles in and across ecosystems as well as ecosystem maturity is seen as crucially important. Ecosystems are constantly evolving. Each of the readiness phases has its opportunities and challenges.  Instinctively, every company should aim to become a “circular hero”. However, it depends on the industry, the current position in the marketplace, and the existing network of actors. Commonly, companies that strive to valorise waste streams lack an existing ecosystem. This is in contrast to the established ecosystem of a company’s core business product/unit. SMEs have a particular challenge because the development of an ecosystem is both time and resource consuming. These companies need to become fully conversant with how to navigate and orchestrate an ecosystem, and that means creating, capturing, and maintaining value in business models that incorporate greater circularity.

References

> Parida, V., Burström, T., Visnjic, I., & Wincent, J. (2019). Orchestrating industrial ecosystem in circular economy: A two-stage transformation model for large manufacturing companies. Journal of Business Research, 101, 715–725.

> Reim, W., Parida, V., & Sjödin, D. R. (2019). Circular business models for the bio-economy: A review and new directions for future research. Sustainability, 11(9), 2558.

  • Wiebke Reim

    Associate Senior Lecturer in Entrepreneurship and Innovation, Luleå University of Technology. Her research interests include business model innovation, the circular economy, and servitization. She is involved in the Northern Periphery and Arctic program funded project, SYMBIOMA. The project is aimed at increased valorisation of side waste by food-processing SMEs in sparsely populated areas.

  • Daria Sas

    Researcher in Entrepreneurship and Innovation, Luleå University of Technology. Her research includes sustainable business model development and the circular economy. She is involved in the Northern Periphery and Arctic program funded project, SYMBIOMA. The project is aimed at increased valorisation of side waste by food-processing SMEs in sparsely populated areas.

  • Vinit Parida Fellow

    Professor and Head of Subject at the Entrepreneurship and Innovation research group, Luleå University of Technology.

Vi använder oss av cookies för att förbättra användarvänligheten och prestandan för sajten. Genom att klicka på godkänn-knappen eller surfa vidare på siten går du med på denna lagring.