Circular business models can drive new revenue streams, build brand strength, customer loyalty, and market traction, while also unlocking value through resource efficiency, cost savings, and reduced risk to supply chain volatility. But there is often too much focus on short-term gains in revenue or sustainability and waste reduction metrics, while overlooking their full business value.
In the third part of our mini series on the Ellen MacArthur Foundation’s new report: How not to fail: Avoiding 10 common pitfalls when scaling circular business models, we hear how, when circular business models are pitched primarily around sustainability, internal commitment is lower.
Pippa is joined by the report’s lead researchers, Maddy Oliver and Ella Hedley, to explore why circular business models rarely scale without a strong, broad financial case.
They also talk about the need for more commercial collaboration. Find out more by listening to episode 196, HolyGrail: see it, sort it, scale it, to learn how one business-led partnership came together to align on the technology and achieve scale.
If you enjoyed this episode, please leave us a review or a comment on Apple Podcasts, Spotify or YouTube. Your support helps us to spread the word about the circular economy.
Transcript
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[00:00.00] - Pippa Shawley Welcome to the Circular Economy Show. This is the final episode in our mini-series, Looking At Why Circular Business Models Fail to Scale. Let's get into it.
[00:13.06] - Pippa Shawley Let's get into our final cluster. Maddy, what is it?
[00:16.09] - Maddy Oliver It is called going alone. Like all great journeys, you should bring together internal and external partners and not do it on your own. This is all about how circular business models really rely on that coordination between so many actors in teams, in functions, in partnerships to bring themselves to life at scale. It's really important that you consider those partnerships from the outset. This cluster really looks at problems related to that. Success at scale really demands more than just a good feeling or vision of what's going to happen. It really comes down to how well you operate that and who's in charge of what and what are the common goals that you're pushing towards.
[01:02.00] - Pippa Shawley We've got two pitfalls left in this cluster. What are they?
[01:05.07] - Maddy Oliver Pitfall 9 is not involving cross-functional teams and leaders, and Pitfall 10 is partnering ineffectively with external organisations.
[01:14.09] - Pippa Shawley Ella, can we go into that first one there, the not involving cross-functional teams and leaders? What's the problem there?
[01:21.00] - Ella Hedley Yes. No matter how good a circular business model pilot or implementation project is, it's not going to scale unless leadership are involved and early. That's something that came up in every interview I think, that we had. We had a lot of push from participants that that was a really crucial point that we had to talk to. There's something that we know about circular business models as they are going to require efforts from many different areas of an organisation. We're talking about changes or iterations or evolutions to, in some instances, all departments, certainly if we're looking at a broad scale transformation. There's something about how we make sure that the leadership are brought in, and they have that as a priority, so they can carry on pushing for it, whatever new priorities surface. But also about how you can bring the different functions in on the journey with you and make them part of that story and make them really care. Something specific that we found in this area, which was really interesting, was around KPIs. Oftentimes the standard KPIs of an organisation will actually massively impede your ability to make your circular business model scale.
[02:36.02] - Ella Hedley For example, if your sales team are working on a KPI that's all about volume of sales of new goods. If you bring in a model that doesn't speak to that, that success isn't demonstrated in that way, they're not going to sell it.
[02:53.03] - Pippa Shawley Maddy, can you give us some more information about what you've heard from companies?
[02:57.07] - Maddy Oliver There were so many examples. As Ella said, I think this was every single person that we spoke to had had some experience of this at some point in trying to scale a circular business model. I think the things that really stood out were doing that engagement early on in the process. We have a great example that speaks to that. We spoke to a global retailer, and they had launched a rental business model that was extremely successful. The margin was eight times that of the linear counterpart for that model. It was phenomenal. It was one of the most successful circular business model pilots they've ever run. But what happened was because of speed to market and also just restrictions within the organisation, they had chosen to use a partner to create that pilot. While it was extremely compelling and extremely successful, when they went to approach all the heads of all the different departments they needed to scale it internally, people just hadn't been on that journey with them. They hadn't seen the benefits, they hadn't understood what it meant in the language of their own teams and their own goals and their own KPIs.
[04:05.00] - Maddy Oliver A lot of people have bonuses that are linked to these things. They've been building up in careers where these are the metrics they've always tracked, and that's how they measure their teams and their success. They just didn't understand how that particular model was going to help them. There wasn't enough buy-in internally. Had they been on that journey and had they seen eight times a success, they may well have been more bought in. Eventually, actually, unfortunately, that pilot, despite being incredibly successful, it was folded. The person we spoke to was saying that afterwards, they've lost love with the idea of doing pilots at all. Actually, what they think about now is just not approaching. They might use the term pilot internally, but what they're really doing is they're building a scaled project. It might take longer, but they now approach things very differently in terms of how they get buy-in, because ultimately, if you need those teams to deliver, the business model at the end of the day, if you're not bringing them on that journey, you're going to really struggle.
[05:05.02] - Pippa Shawley What steps can you take, Ella?
[05:07.06] - Ella Hedley I think we often forget, particularly sustainability and circular economy professionals. This is our every day, and we're really familiar with these concepts. I think we really often forget how unfamiliar they are to certain people we might be interacting with and even working with. I think, again, we can't underestimate the power of narrative in this sense. We've spoken in earlier episodes about how you map to capabilities and who do you need involved in things. But then how are you going to engage them? How are you going to bring them on that journey? Making sure you're speaking the language that makes sense to them. If it's a customer team, how do you tell the story of customer loyalty, for example? I think that also translates into how you build the project as well. If you're co-creating a project, you're going to be so much more invested in seeing it succeed rather than if you're bought in late in the day and told to do something that's new and unfamiliar. Of course, back to that KPIs point, which I don't think we can repeat enough. I think we really need to understand how we're incentivising teams across organisations to make sure that...
[06:15.08] - Ella Hedley Because, again, you can have a really great project. If you get to the point where an individual just doesn't care about it because it doesn't speak to what they need to achieve and how they're fiscally incentivised often, then that's going to a huge barrier.
[06:31.09] - Maddy Oliver I think there's also a tool that you can use to bring all these elements together. Sometimes what you really need is a cross-functional steering committee that involves the leaders from early on in all these different functions because that allows them to input throughout the project into what do they want the goals and KPIs to be, what do they want the outcomes to be, and it then becomes that co-created roadmap, that journey that everyone's bought into.
06:54.07] - Pippa Shawley No one's second-guessing anything either.
[06:56.04] - Maddy Oliver Exactly. But the best examples are ones where you actually have very senior people on that leadership team. It is really about a joint vision, and it's really speaking to what's valuable for all of those different leaders.
[07:13.04] - Pippa Shawley Ella, we've talked a lot throughout the last four episodes about partners and how they can be really useful to help understand areas that companies might not understand, but also relying on partners without the capability to scale has been a problem. Your final pitfall is partnering done ineffectively. Tell us a bit more about that.
[07:34.00] - Ella Hedley What is often the case with circular business models is that external partnerships are a really critical part in actually just getting something going. They can reduce upfront investment, they can bring expertise and capabilities that you don't have in-house. But there's something really important about how you set those up for success. Often where we saw failures were when, for example, a mutually beneficial roadmap wasn't created. The partnership made sense in the moment, but there wasn't really an incentive for the partners to come on that journey and to really make a success when things got a bit trickier or a bit more challenging. It's also understanding where partners can support you and maybe where they won't be so helpful. For example, if you partner with them to deliver a model in a particular geography, but they can't meet that additional capacity, or they can't operate in other geographies, it's really helpful to know upfront.
[08:37.04] - Ella Hedley Finally, something that was really interesting to us was just around how you set up data sharing in the contracts. Where a partner is delivering something for you, how do you make sure that anything they're learning doesn't just benefit them and their learning, but also then helps you to build out the bigger picture of how you can better operate that model. That might be customer data, not losing those really fundamental learnings that are going to help you in bringing that model to scale.
[09:07.05] - Pippa Shawley Also help the rest of the business understand what you're doing, I suppose.
[09:11.00] - Ella Hedley Yeah, completely.
[09:12.01] - Pippa Shawley Maddy, what example do you have for us around this one?
[09:14.04] - Maddy Oliver We have a fantastic one of that problem exactly with data. I think it's great. It's a really tangible example that people can understand. We had this big global company that was launching a repair service, and it had really redefined their after-sales experience, and it required a lot of new capabilities that they just didn't have in-house. I think we hear that a lot with repair as a model it can be quite difficult and quite different to what companies are used to doing. Due to this, they had chosen to partner with a local supplier, which, again, is pretty common for repair. It was a massive success. It was both financially successful and also in terms of customer satisfaction. It was a real addition to what the brand was offering, and it was responded to very well with both existing customers and new segments. It was fantastic. The team that had launched it began building that and expanding it as an in-house capability. That was really the only way that they felt that they could scale long term was to bring it in house. But they realised when they got to that point that they needed a lot of financial backing from the business.
[10:21.08] - Maddy Oliver They're bringing their business case to leadership. They went to the partners, and they wanted to access the customer data, not the data itself, but the numbers. How well have people responded to this? What was that customer satisfaction boost? They realised that because of GDPR and the way they'd set up the original agreement, they couldn't access any of that data. They had this super compelling narrative, and they couldn't back that up with any real numbers. Unfortunately, they were never able to get the buy-in that they needed to create that momentum to scale. It's such a shame because it was such a successful example, and it just shows how setting up that partnership from the get-go, if they had considered the data they would need access to in the long term, they may have set up that agreement very differently.
[11:08.02] - Pippa Shawley Again, goes back to what we've talked about before about KPIs and thinking about what you're looking for at the end of the project or how you're going to measure it. You need numbers if you're going to measure things.
[11:18.02] - Maddy Oliver Absolutely. If you don't have that intention... If you don't think about things, you normally don't measure them. I think that's a really key thing. They may have assumed that the external partner was measuring them, and they were, because it's fantastic for their sales to then go to other people and say, "Look at this customer loyalty increase. Look at the satisfaction here." But if you can't tell those same stories, that's going to be a real limitation.
[11:39.07] - Pippa Shawley Ella, measuring seems to be a solution, but tell us more about how those issues can be addressed.
[01:11:46.00] - Ella Hedley Yeah, totally. Number one, what information do you need them to capture? Also, how are you going to share that information is really important. That was a barrier that we saw. It was just how that story gets relayed back into the organisation.
[11:59.06] - Pippa Shawley I guess within different geographies as well, because Maddy talked about GDPR, but there are different laws elsewhere.
[12:03.08] - Ella Hedley Yeah, completely. If you're going to build multiple partnerships across different geographies, you need to have a standardised picture of what the data is that you're collecting and how you're getting that back. To the point of how you work with in-house teams, again, how can you co-create and co-design that roadmap that really brings the partner along on the journey and helps them to see that if this scales, we start to do something really cool, and this is how you benefit from that. The final thing is how we evolve the nature of supply chain relationships. It was really interesting to hear from some of the businesses about how supply chain relationships to date are very much about getting the lowest possible price and the quickest possible turnaround. There might be an evolution that we need to see in terms of how that relationship works as we move into the circular economy and circular business models to really look at how that becomes a mutual relationship again. How does that look when you play it forward? Why should supply relationships look different as we move towards a secular economy?
[13:14.02] - Maddy Oliver Yeah, I think that's such a good point. I think reciprocity and the giving nature of a lot of circular business models is one of the most exciting and compelling things about them. I think sometimes we lose sight of that and how we talk about them and also how we design the partnerships. It should be about generosity, and it should be about us working together more collaboratively.
[13:36.00] - Pippa Shawley Which is something we've heard, again, several times in our discussion and also from our commercial collaboration work as well. Well, we've discussed four clusters, 10 pitfalls. There's lots to think about. We've also bombarded people with a lot of information. Ella, could you recap on those cluster that we've talked about over the last four episodes?
[14:02.05] - Ella Hedley Yes. If you're going to take anything away from this, circular business models fail to scale when their thinking is too small. There's not that vision for the scale from the outset. When there's strategic misalignments, the product business model and customer experience aren't really considered and aligned. Relying on a narrow business case and not forgetting that this is about more than just sustainability. This is a really interesting business proposition, and in some instances, that's the only way we're going to get them to scale, and going it alone, as we've spoken about in this episode. Collaborating better.
[14:39.08] - Pippa Shawley It's been a huge amount of work, Maddy. What have your takeaways been from the last few months? It must have taken over your life to some degree talking to 30 businesses and trying to crunch these down into these takeaways. But what have been your personal takeaways from this?
[14:56.03] - Maddy Oliver Yeah, it's been an 8-month journey of hearing these stories, and it's been really inspirational, actually. I think the three biggest things that I'm taking away is, firstly, not to be discouraged by failure. So many of these stories were positive, and were also just really energising to see the effort and the level of collaboration and energy that people are putting into a circular business model. I think, firstly, it's just where we're at. We're at the implementation phase. Things are going to be sticky and difficult, and actually don't be discouraged by the fact that things are failing. It's all part of the process. I think, secondly, what I'm taking away from this is there is no silver bullet. There is no one organisational setup or one partnership that's perfect that's going to help you get to scale. Sometimes that can feel a bit disappointing because we all want the single thing we can do, but actually, I think that's a really positive story. I think what that means is in any context, in any business, people can make a success of this. It's just really great to see how much cross-cutting learnings are. Actually can be taken from this.
[16:01.04] - Maddy Oliver There's no need to have great agency over your completely redesigning your organisational setup or totally changing how you work with external partners, which is outside the agency of a lot of practitioners that we work with. It's actually good news. It means you can start from any starting point and still see success. There's many ways to get there. I think lastly, if you could zoom out from this list, as I have many times over this process. It does read like a laundry list of change management issues. I think we wrestle with that a little bit at the beginning of the paper. We were like, "Are we really saying anything new here? Is this just all change management projects ever?" I think we decided to address that head-on. I think it's both right and it's wrong. I think it's right because, as I said before, we are in the implementation phase. This is the bit where you get to these points of failure, and it's just a bit difficult. It is a little bit like coming across change management in any other part of the organisation. But why that's brilliant is there's so much support out there for change management.
[17:11.01] - Pippa Shawley It's reassuring.
[17:11.01] - Maddy Oliver Exactly. There's also so many functions in your organisation that are used to doing this. The innovation functions and the business change functions, they're going to have experience of doing this. It's really about collaborating with the right people and making sure that you've got support on this journey. Then why I think that statement is also a little bit wrong is actually what we've seen so far is very much linear innovation journeys. Circular economy and circular business models, it does create different challenges. We have tried to draw out in the paper where we think this really is a different experience and where we need to think about things slightly differently in circularity.
[17:46.02] - Ella Hedley If I can break Maddy's perfect three, I would add that we set about trying to find failures. We found so many successes. It was actually quite difficult to frame this as a failure paper. I think just to add to that sense of optimism, there were so many nuggets of information that were so hopeful and inspiring.
[18:14.00] - Pippa Shawley Also, to me, it sounds a lot like the successes need some space to breathe as well. Some of the examples you both brought sounded like success stories that have been closed down too quickly or not fully understood by people outside the direct project line.
[18:30.00] - Maddy Oliver I think the rhetoric around failure has changed in the last decade in businesses. I think sometimes we just haven't seen that same generosity and kindness towards failure been extended in circularity and sustainability circles. People feel a lot of pressure to get these things off the ground, and quite rightly, but I think that means that people can be a little bit afraid to talk about these experiences for fear that they then get assumed that the whole model is not working, or the whole business model isn't correct for them. I think that's the biggest thing I'm taking the way. This is not about circular business models not being fit for purpose or not being viable. It's really about just where we're at in the process and getting over those hurdles.
[19:09.07] - Pippa Shawley I think it's important to say that in the paper and in the podcast, we've used anonymity throughout, but actually, there are way more examples in the paper, and you've also linked to people on the record as well.
[19:20.07] - Maddy Oliver Absolutely. There's a lot of external links. We've really tried to cross-pollinate across other external resources, other work that we've done, and draw on experiences from many different industries and from many different types of organisations. We definitely encourage people to check those resources out
