Circular Business Models: Insights from Research & Practice

The transformation to circular value creation must be approached holistically, thinking far beyond individual products and processes. This became clear once again at the fifth event of the Zirkel.Training series, at which we visited the Alanus University of Arts and Social Sciences. About 45 listeners enjoyed an exciting introduction to the topic of ‘circular business models’ and the insights provided by smartphone manufacturer SHIFT.

Innovation within existing business models is not enough

In his presentation, Prof. Dr. Stephan Hankammer first highlighted the social relevance of the topic of sustainability, before stating that the answers provided so far to the pressing challenges – ranging from globally rising CO2 emissions to plastic production – are by no means sufficient.

This also applies to solutions such as the circular economy. The reason? For one thing, strategies that pursue innovation within existing business models fall short. On the other hand, the needs of users are often not taken into account enough. The alternatives are user-centered circular business models.

Typification of business models

In order to describe and structure circular business models, a distinction can be made according to the service component. Whereas in product-oriented models the manufacturers hand over their products entirely to the users, in usage-oriented variants such as renting or sharing they remain the owners – including responsibility for maintenance, return and recycling.

The most far-reaching business models are outcome-oriented, in which a result, e.g. clean laundry, is sold as a service. This is provided by the provider without the customer using or owning a product themselves. The higher the service level, the more consistently circular strategies such as repair or long or intensive use can be integrated into the business model.

It won't work without the acceptance of the users

However, one of the biggest hurdles to the success of such business models is the lack of acceptance by consumers. “Users must participate,” says Stephan Hankammer clearly. This can be achieved by researching the needs of users and possible “pain points” in the customer journey and taking them into account in the design process. In terms of methodology, the jobs-to-be-done approach is a good way to do this, asking about the deeper needs behind a formulated product desire.

One important finding remains to be noted: Circular business models are only successful if they serve actual user needs – and contributing to circular value creation is usually not one of them.

SHIFT happens - or how a smartphone manufacturer wants to revolutionize the world

The fact that intrinsic motivation is a key driver of action for the company SHIFT GmbH from North Hesse quickly became tangible in the presentation by Leon von Zeppelin and Thomas Krause. The manufacturer of modular smartphones and laptops takes a holistic approach to change (“Shift”), which is also expressed in the company’s mission statement “Appreciation”. The company wants to show appreciation to its employees as well as to its suppliers and customers.

The extent of the problem that SHIFT wants to help solve is illustrated by a comparison. 53.6 million tons of electronic waste are generated worldwide every year, which weighs more than the Great Wall of China.

So what makes the Shiftphone a circular business model? SHIFT identifies thirteen R-strategies:

Modularity as a prerequisite

The central approach is the modular design of the phone. This is because it makes it possible in the first place to repair the device, use spare parts and recycle it in later stages. Simple and aesthetic product design contributes to user appreciation, while the included screwdriver and video tutorials support independent repair.

In order to get the Shiftphones back for remanufacturing or recycling after the end of use, SHIFT has opted for a device deposit that is paid at the time of purchase. Upon return, it is then possible to upgrade or pay off the deposit. In the case of recycling, the company is still looking for best practices – and is waiting for relevant return volumes to make it worthwhile.

Without a doubt, users play a major role in SHIFT’s business model: in the way the company understands and cultivates its relationship with them, but also in the active and conscious role they play in implementing circular approaches such as repair and long-term use.

Outlook

Where else can the journey go? SHIFT aims to evolve its products into the “universal device” that blurs the distinction between smartphone and laptop because the same components can be used in different devices. And even if the market for modular smartphones is still manageable, at least the big players are watching with curiosity what pioneers like SHIFT or Fairphone are doing …

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