As per the classic definition of sustainability – “It is the ability to meet the needs of the present without compromising the ability of future generations to meet their own needs.”
Regenerating something seems better than just sustaining it as companies recognize that just being sustainable won’t get us to our targets. In this, the first of a two-part blog series, I will address the trends emerging from sustainability and innovation in the business model that are leading to the adoption a circular economy using circular supplies, servitization, and resource recovery.
Trends emerging from sustainability
Consumers are in the driver’s seat when it comes to the consumer-to-business (C2B) model. Consumers have been demanding more sustainable products from companies. Sustainability has, therefore, become a competitive differentiator to offer value.
Consumers are becoming more:
- Attuned to their health and wellness
- Insistent on transparency and traceability (in the food sector for example, companies have started providing emissions information on their product labels)
- Aware of the dangers of climate change and keen to support businesses fighting against environmental damage when making purchasing decisions
Although a cost premium is attached to sustainable consumption, many consumers are willing to pay more from comprehensive product range.
Sustainability on the rise:
Due to rapid population growth and an upwards economic model, the world faces an unprecedented resource crisis.
CEOs believe that a sustainable company’s purpose goes beyond profit and shareholder value. They see that a resilient, sustainable business across the triple bottom line will be not only good for communities and the environment but can also have a positive impact on the company’s overall performance.
Sustainability trends include:
- The EU recently announced that it would tighten its 2030 CO2 target (-55% CO2 emissions).
- Over one thousand companies have signed upfor science-based climate action, and 472 companies have approved science-based targets as of this writing. Reducing the carbon footprint by 50% will move the Earth Overshoot Day by 93 days.
- Over 250 Renewable Energy (RE100) companies have committed to going “100% renewable” for clean energy and zero-carbon grids to deliver a cleaner and healthier future.
- 1,440 organizations have been using the “Task Force on Climate-related Financial Disclosures (TCFD)” climate scenario planning to understand long-term exposure to climate impacts and integrate climate risks and opportunities into corporate strategic thinking and planning.
Strategic priority for building sustainable business model innovation:
By driving production and consumption, global businesses significantly impact our planet and play a vital role implementing solutions by moving to a low-carbon, circular economy.
Businesses need to start reinventing their business models and developing the ecosystems that will drive sustainable business success. The transformation must begin now to reach the carbon outcomes required by 2030. Companies’ main challenge is to redesign their business models to include sustainability, degrowth, and circularity in which they create value.
Decoupling business growth from the consumption of finite natural resources and designing ways to minimize impact on the environment and society will be the future business model.
Organizations can design and implement new forms of sustainable business-model innovation by:
- Maximizing material and energy efficiency
- Creating value from waste, substituting with renewables and natural processes
- Delivering functionality rather than ownership, adopting a stewardship role in sufficiency and repurposing the business
- Changing processes and products by addressing the underlying value structure and develop scaleup solutions
- Designing systems that support minimization of consumption and consider the holistic impact of a product throughout the lifecycle
- Adopting a cradle-to-cradle circular approach to product design strategies for the circular flow of materials with the concept of recycling along the lifecycle of a product.
Consumer goods companies are increasingly piloting and adopting circular strategies. These include redesigning products to require less material and energy, shifting to product-as-a-service models, setting up product take-back schemes, recovering and repurposing waste, and substituting finite materials for renewable ones.
Let’s discuss the role of innovation in adopting a circular economy using circular supplies and servitization and resource recovery.
To enable circular suppliers, the supplier will have to use renewable energy and recyclable input material to replace the single use of lifecycle inputs.
Walmart Inc. and Schneider Electric announced a new collaboration that will provide increased access to renewable energy for Walmart’s US–based suppliers, enabling them to lead on climate action by renewable energy purchases and accelerate renewable energy adoption.
Servitization business model:
Designing long-life products and encouraging sufficiency: Extending the product utilization period can reduce resource use by designing for durability and upgradability. Reliability and product life extension deliver affordable performance to the customer.
This is sufficiency-driven business model innovation, where the value proposition will be based on an upfront premium price. For example, Bundles/Miele charges households with a subscription cost plus a fixed price per washing machine load.
Products-as-a-Service: Introducing digital products that deliver a service compared to products of consumption that extend product life, including reusing the product, maintenance, repair, and technical upgrade. For example, Philips launched a light-as-a-Service business, so we are not buying the light bulbs, but purchasing the lumen on our desk. The company takes care of the bulbs, and they’re selling this as a service.
There are new models where the actual asset’s responsibility stays with the company even during the use phase. That ensures proper recycling because it’s in that company’s interest to make the best of that asset as long as they can. Another example, Rolls Royce no longer sells just aero-engines but “Power by the Hour.” This gives benefit to the customer in continuous uptime, and this drives innovation in reliability. The value proposition is based on the delivery of the service rather thanownership.
Extending product value by exploiting the residual value of products: Re-manufacturing typically becomes the original manufacturer’s activity to recover products that have stopped working, with no new net consumption of materials and taking those pieces into new products.
In this case, the value proposition is centered around manufacturers exploiting the residual value of products. It delivers the customer an affordable “like new” product through remanufacturing or repair or product life extension design strategies. For example, Caterpillar mastered is the remanufacturing process, turning old pieces into new products.
The 3 REs (REuse, REmanufacture, REcycle) are collectively the answer and the problem of business model innovations. At Capgemini, we are transforming business model via servitization with our approach to support clients to become the Renewable Enterprise.
Business model and design strategies will need to go hand in hand to transform the economy from linear to circular.
The circular economy moves away from the traditional “take-make-dispose” economic model to one that is regenerative by design. By applying circular economy principles, companies can design out waste, increase resource productivity and reduce the risk of high commodity prices from resource scarcity, which provides opportunities to reduce operating costs, improve competitiveness and strengthen relationships with customers, employees, and suppliers.
Regeneration is a constituent of the circular economy, where materials flow continuously, with little to no loss and waste of quality. A regenerative company contributes to its sustenance and doesn’t over-consume natural resources and ecosystems.
Businesses are keen to act but aren’t sure where or how to start. At Capgemini, we are transforming business models via servitization with the renewable enterprise.
This brings me to the end of part one. In part two of this series, I will walk you through the sustainable solutions as part of the sustainability initiative in the Source to Pay Business domain and how we can support our clients to take them through from regeneration to making Renewable Enterprise using the Integrated Architecture Framework (IAF) and Multi-Pillar S/4 Architecture (MPSA).