The circular economy is a solution to the economic autumn and winter. How can its principles lead to a transformation of traditional business models, an increase in effectiveness of operation and a reduction of costs? Find out how changes such as digitisation, optimisation, sharing, co-operation and leasing offer firms a lifeline in a time of approaching crisis. An integrated solution offered by the Senior Innovation Designer at Direct People, Cyril Klepek.
Nature and the economy have one thing in common: they work in cycles. After the burst of spring there is a glorious summer, followed by a slower autumn and a harsh winter. Similar cycles are also typical in the economy. For each cycle there are varying levels of investment, consumption – and also waste.
After the pleasant summer, it seems that for national economies autumn is coming as a messenger of winter. There is a decrease in companies profitability and the size of investments in new startups, the stock market is dropping sharply and consumer spending is declining.
A season is coming in which companies will invest less in groundbreaking products and services, and focus more on innovations that will save their resources and optimise their business.
This is an entirely natural and correct mechanism, in which every “crisis” enables those who manage their work best to survive. And it is precisely to these most competitive businesses that manufacturing resources shift from the less capable. The great Czech-born thinker Joseph Schumpeter appositely expressed this process with the phrase “creative destruction”.
However, good news is that a lifeline exists. It is the circular economy. With its emphasis on efficiency it helps those who make smart use of its principles in times of crisis.
So let’s take a look at some of the principles of the circular economy that provide companies with the opportunity to markedly reduce costs and improve their operation efficiency in general.
Digitization will be one of the main driving forces in the firms and also local authorities transition to the circular economy. The internet of things (IOT), big data and advanced data analysis with artificial intelligence allow for more effective production management. Products and services will be offered in far more tailor-made form – to those who genuinely need them, as well as within the required scope.
Optimization in the use of solar panels or wind farms is relatively well known. However, digitization also penetrates into agriculture. For example, the Czech firm CleverFarm enables Czech farmers to have all the information they need presented to them clearly in a mobile application in real time, and thereby save costs on all agronomic activities.
Digitization is like a bridge which connects business models consisting of the products sale with a system in which products with a long life are provided, hired or shared.
One of the examples of such a solution is a platform for sharing resources among firms called FLOOW2. It allows you to temporarily hire not only construction and computer technologies, but also for example employees.
Just like natural persons, firms also do not need to own a large parts of their property. This also relates to offices. Statistics show that a large part of office space is unoccupied during the working hours, and firms thus pay for unnecessary gas, electricity and naturally rent. The Czech market is very well aware of this, and that is why the coworking spaces are flourishing. This year alone, HubHub and the international coworking number one WeWork entered the market. Today you can find a coworking centre in every large city in the Czech Republic.
Some companies are also seriously considering whether their product must be a physical entity or if it is possible to only create its digital form. A good example that this works is the smooth transition from compact discs to music streaming, as offered by Spotify or iTunes.
Digitization is far from being the only area of the circular economy that offers a great opportunity. Another is a total change of business model, in which companies attempt to start selling their products in smart form as a service.
A long time ago Philips introduced its Pay-per-lux project, in which you do not buy light in the form of light bulbs, but as a service. You only pay for an hour of light. In combination with movement sensors and advanced diagnostics, this means more than 40% cost savings for Philips.
The company did not stop at light. As part of its Diamond Select Advance programme, Philips also rents out expensive medical equipment for magnetic resonance imaging. The hospital thus always has access to the most state-of-the-art version of the equipment, which it otherwise could not afford, and Philips takes the previous model back for refurbishment. This approach requires close cooperation between hospitals, servicing organizations, the renovation centre and Philips, but the reward is a long-term sustainable win-win business model.
In times of crisis every business seeks savings even in areas that until that time may have appeared unimportant. It becomes interested in whether it really has to pay for the waste it produces, or whether on the contrary someone is prepared to pay for parts of it.
Such mental exercise awaits above all municipalities, where the potential is the greatest. Examples here could be Prostřední Bečva or Trojanovice municipality, that thanks to their smart system of waste recording called Econit have increased the quantity of their separated waste at the expense of mixed municipal waste, and thereby gained the opportunity to utilise their separated waste commercially.
Not just the approaching economic crisis but also the state of our planet is forcing us to seek new forms of cooperation and industrial symbioses. Not only can one firm’s waste be another firm’s input resource, but research and product teams will also join forces in order to lower costs.
One of the main players of the Open Business movement is the multinational corporation Procter&Gamble. It recently announced that thanks to their Connect and DevelopSM programme, which connects clients with researchers or product managers with the competition, one out of three products is now generated outside of the company.
Economic slowdown does not always have to be just negative. Every crisis is at the same time also a catharsis, that can help us learn a lot. The next one may remind us of the traditions of responsibility and an economical approach to business that have been with us since the times of Tomáš Baťa. Let’s hope that after the economic autumn and winter, the circular economy will have a greater say in our society.